Practicing Success
Building rent, Insurance premium, salaries etc. are examples of which cost? |
Financing Cost Operating Cost Investment Cost Weighted Average Cost of Capital |
Operating Cost |
The correct answer is option 2- operating cost. If a business has high fixed operating costs (e.g., building rent, Insurance premium, Salaries, etc.), It must reduce fixed financing costs. Hence, lower debt financing is better. Similarly, if fixed operating cost is less, more of debt financing may be preferred. |