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Which of the following should be true about the cost of equity capital? Re unlevered >...

Which of the following should be true about the cost of equity capital?

Re unlevered > Re levered

Re unlevered < Re levered

Re unlevered = Re levered

Part 2: Which of the following is a side effect to financing?

The cost of issuing new securities

Financial distress

The tax subsidy to debt

All of the above
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Answer #1

Part 1. Option b is correct option . Cost of unlevered or all equity firm is less than cost of levered firm because levered firm has more risk.

Part 2 Option b is correct option. Financial distress. because when higher debt is borrowed then interest payment can cause distress during recession

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