1084 9.3821 Gapenski UNLV Chapter 13 Capital Structure and the Cost of Capital LO13.1 Explain the effects of debt financing on a business s risk and return.
Debt financing improves the return on investment up to a point.
At some point, the level of debt is so high that it makes the stock risky and lowers its value. Discuss the factors that influence the choice between debt and equity financing. Typically, firms use debt when prospects are good and issue stock when prospects are less favorable. Describe the general process for estimating the corporate cost of capital. The corporate cost of capital is the weighted average of the costs of the various sources of financing.