A corporation may lower its cost of capital by shifting a portion of its total financing from a higher cost source of capital,such as common equity,to a lower cost source of capital,such as debt.

Question

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This statement is true. Corporations strive to minimize their cost of capital to maximize their profitability. Shifting financing from higher cost sources to lower cost sources is one way to achieve this goal. However, it is important to maintain a balanced and diversified capital structure to minimize financial risk.

A Corporation May Lower Its Cost of Capital by Shifting