A company has a capital structure that consists of 50% debt and 50% equity. Which of the following is generally true?

Question

Quizplus · Accepted Answer

The cost of equity financing is generally higher than the cost of debt financing, so option B is true. Since the company's capital structure consists of both debt and equity, its weighted average cost of capital (WACC) must take into account the cost of both sources of financing. Therefore, option C is false. Moreover, since the cost of equity financing is higher than the cost of debt financing, the WACC will be higher than the cost of debt financing alone, but lower than the cost of equity financing alone. Hence, option A is also true.

A Company Has a Capital Structure That Consists of 50