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Please compare. What is the tradeoff between taking on a lot of debt due to its...

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Finance

Please compare. What is the tradeoff between taking on a lot ofdebt due to its low cost versus an increased probability offinancial distress when too much debt is used. How does this relateto an optimal capital structure? Give an example that related tothe question.

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3.8 Ratings (390 Votes)
Answer Cost of debt is less expensive than equity as it is less risky Reason being that Debt investors have priority over equity investors in terms of payments and in case of liquidation as    See Answer
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Please compare. What is the tradeoff between taking on a lot ofdebt due to its low cost versus an increased probability offinancial distress when too much debt is used. How does this relateto an optimal capital structure? Give an example that related tothe question.

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