Explain why the weighted average cost of capital of a firm that uses relatively more debt capital is generally lower than that of a firm...

Explain why the weighted average cost of capital of a firm that uses relatively more debt capital is generally lower than that of a firm that uses relatively less debt capital.

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Low profit margins in case of a firm that relies majorly on borrowed capital.

High expenditure-at end of the trading period much of the returns are used to pay the loan.

Limited expansion due to low capital base as a result of borrowed capital.

Stiff competition may lead to collapse of the business in case of high borrowed capital.

Low economies of scale may be experienced especially when there is inflation in a country

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Real Educator answered the question on April 23, 2018 at 09:24

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