If the debt/assets ratio increases, the costs of both debt and equity normally decrease.

Name: If the debt/assets ratio increases, the costs of both debt and equity normally decrease.
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Quizplus · Accepted Answer

If the debt/assets ratio increases, it means the company is using more debt financing which increases the financial leverage. This increases the risk for both the debt and equity holders, so the cost of debt and equity typically increase as well.

If the Debt/assets Ratio Increases, the Costs of Both Debt