If a firm increases the amount of debt that it has this could lead to an increase in:

Question

Quizplus · Accepted Answer

When a firm increases the amount of debt it has, the financial risk increases since the firm has a higher obligation to repay funds borrowed. This, in turn, increases the perceived riskiness of the firm, which leads to a higher cost of equity. Therefore, the increase in the amount of debt can lead to an increase in both the cost of equity and the financial risk.

If a Firm Increases the Amount of Debt That It