The relative inexpensiveness of debt capital is due to the fact that the lenders take the least risk of any long-term contributors of capital.

Question

Quizplus · Accepted Answer

This statement is true as debt capital providers have the lowest risk among long-term contributors of capital as they have a legal claim on the borrower's assets and are paid before equity investors in the event of liquidation. Therefore, lenders may accept lower returns on their investment as compensation for their lower risk.

The Relative Inexpensiveness of Debt Capital Is Due to the Fact