It is typical to expect the first increase in the marginal cost of capital to occur when the firm exhausts its retained earnings and proceeds to raise capital by issuing debt.

Question

Quizplus · Accepted Answer

The first increase in the marginal cost of capital typically occurs when a firm exhausts its retained earnings and proceeds to raise capital by issuing new equity, not debt, because issuing new equity often comes with higher transaction costs and dilutes existing ownership, making it more expensive than debt financing.

It Is Typical to Expect the First Increase in the Marginal