Question #1
Reading: Reading 17 Cost of Capital - Advanced Topics
PDF File: Reading 17 Cost of Capital - Advanced Topics.pdf
Page: 1
Status: Unattempted
Correct Answer: B
Question
A company is most likely to have a high cost of capital if the firm has a low:
Answer Choices:
A. total debt-to-EBITDA ratio
B. interest coverage (IC) ratio
C. debt-to-equity (D/E) ratio
Explanation
Low interest coverage (IC) suggests that a firm has a reduced ability to service additional
debt. Holding business risk constant, companies with higher proportions of debt in their
capital structure are likely to face higher costs of capital.