Debt is a relatively inexpensive source of capital because lenders take the least risk among the long-term contributors of capital.

Question

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Lenders take the least risk among the long-term contributors of capital because they have a legal claim to the borrower's assets in case of default. Therefore, debt is a relatively inexpensive source of capital compared to equity or preferred stock, which have a higher risk profile and cost of capital for investors.

Debt Is a Relatively Inexpensive Source of Capital Because Lenders