Nature of assets will affect the optimal level of debt for a ﬁrm.

Question

Quizplus · Accepted Answer

The nature of assets, such as their liquidity and stability, can determine the level of risk associated with a firm's borrowing, which in turn impacts the optimal level of debt that can be sustained. For example, a firm with stable, predictable cash flows from tangible assets (like real estate) may be able to take on more debt than a firm that relies on more variable revenue streams from intangible assets (like patents or brand recognition).

Nature of Assets Will Affect the Optimal Level of Debt