Final answer:
The main drivers of the cost of debt are the interest rate and the creditworthiness of the borrower. Higher interest rates and lower creditworthiness result in higher cost of debt. For sustainability, companies need to manage their debt levels and maintain a sustainable capital structure.
Step-by-step explanation:
The main drivers of the cost of debt are the interest rate and the creditworthiness of the borrower. The interest rate is determined by factors such as the prevailing market rates, the level of inflation, and the perceived risk associated with lending to the borrower. Higher interest rates result in higher cost of debt.
Creditworthiness refers to the borrower's ability to repay the debt. Factors such as the borrower's credit score, financial health, and past repayment history affect their creditworthiness. A higher creditworthiness results in lower borrowing costs and vice versa.
When it comes to sustainability, companies with higher levels of debt may face challenges in meeting their debt obligations, especially if they are unable to generate sufficient cash flows. This can potentially lead to financial distress and even bankruptcy. Therefore, managing debt levels and ensuring a sustainable capital structure is important for the long-term viability of a company.