Which of the following would generally be assumed to increase the cost of debt for a firm?

Question

Quizplus · Accepted Answer

Issuing bonds with longer maturities increases the risk that interest rates will increase and make the bonds less attractive to investors, which would increase the cost of debt for the firm. Additionally, a larger bond issue than usual could signal to investors that the firm is in a riskier financial position, which could also increase the cost of debt. Therefore, both options A and B would generally be assumed to increase the cost of debt for a firm. Option C, having a convertible bond issue, may actually decrease the cost of debt as it provides investors with an additional option to convert their bonds into stock, which may make the bonds more attractive and therefore decrease the cost of debt.

Which of the Following Would Generally Be Assumed to Increase