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Which of the following statements is CORRECT? Ans...

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Question

Which of the following statements is CORRECT? Answer a. Since a firm's beta coefficient is not affected by its use of financial leverage, leverage does not affect the cost of equity. b. Increasing a company's debt ratio will typically increase the marginal cost of both debt and equity financing. However, this action still may lower the company's WACC. c. Since debt financing raises the firm's financial risk, increasing a company's debt ratio will always increase its WACC. d. Increasing a company's debt ratio will typically reduce the marginal cost of both debt and equity financing. However, this action still may raise the company's WACC. e. Since debt financing is cheaper than equity financing, raising a company's debt ratio will always reduce its WACC.

 

Paper#7199 | Written in 18-Jul-2015

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