Agency Costs and Financial Flexibility

In the last chapter, we consider agency costs and lost flexibility as potential costs of using debt. Where in the cost of capital approach do we consider these costs?

a. These costs are not considered in the cost of capital approach b. These costs are fully captured in the cost of capital through the costs of equity and debt, which increase as you borrow more money.

c. These costs are partially captured in the cost of capital through the costs of equity and debt, which increase as you borrow more money.

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