ABC Corp

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Assume the manager of ABC Corp makes the following statement: “To lower my cost of capital, I’ve decided to no longer buy equipment with debt financing anymore. Instead, I will only lease equipment – therefore I have no bank loans and my cost of debt is now zero. More so, since ABC Corp is privately held, and I personally own all the equity – ABC Corp cost of capital is now also zero!”.

a. Is the manager correct in his thinking?

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