The cost of equity should be lowest when the debt-to-equity ratio is:

Name: The cost of equity should be lowest when the debt-to-equity ratio is:
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Question

Quizplus · Accepted Answer

The cost of equity is inversely related to the amount of debt a company has. As debt increases, the risk to equity holders also increases and demands a higher return to compensate. Therefore, when the company has no debt, the risk to equity holders is at its lowest, resulting in the lowest cost of equity.

The Cost of Equity Should Be Lowest When the Debt-To-Equity