Assume that an MNC has very stable cash flows and uses very little debt. Its cost of debt should be:
A) lower than its cost of equity.
B) higher than its cost of equity.
C) lower than the country's risk-free rate.
D) lower than its credit risk premium.

Question

​Assume that an MNC has very stable cash flows and uses very little debt. Its cost of debt should be:
A) ​lower than its cost of equity.
B) ​higher than its cost of equity.
C) ​lower than the country's risk-free rate.
D) ​lower than its credit risk premium.

Quizplus · Accepted Answer

Since the MNC has very little debt, it is less risky for lenders, which means the cost of debt should be lower than the cost of equity.

​Assume That an MNC Has Very Stable Cash Flows and Uses

Assume That an MNC Has Very Stable Cash Flows and Uses