A company issues debt at 8%. A year later, the risk free rate on government bonds has increased 100 basis points to 5% from 4%. If nothing else has changed, how does this impact the company's current cost of debt?
A) It increases it by 100 basis points
B) It decreases it by 100 basis points
C) Changes in government bond yields do not affect the cost of debt
What happens to the company's cost of equity in the above scenario?
A) It goes up
B) It goes down
C) Cost of equity is not impacted by changes in equity