Which of the following statements is correct?A. Since debt financing raises the firm's financial risk, increasing the target debt ratio will always increase the WACC.B. Increasing a company's debt ratio will typically reduce the marginal costs of both debt and equity financing. However, this action still may raise the company's WACC.C. Since debt financing is cheaper than equity financing, raising a company's debt ratio will always reduce its WACC.D. Since a firm's beta coefficient is not affected by its use of financial leverage, leverage does not affect the cost of equity.E. Increasing a company's debt ratio will typically increase the marginal costs of both debt and equity financing. However, this action still may lower the company's WACC.

Question

24-01-2020
Business

contestada

Which of the following statements is correct?A. Since debt financing raises the firm's financial risk, increasing the target debt ratio will always increase the WACC.B. Increasing a company's debt ratio will typically reduce the marginal costs of both debt and equity financing. However, this action still may raise the company's WACC.C. Since debt financing is cheaper than equity financing, raising a company's debt ratio will always reduce its WACC.D. Since a firm's beta coefficient is not affected by its use of financial leverage, leverage does not affect the cost of equity.E. Increasing a company's debt ratio will typically increase the marginal costs of both debt and equity financing. However, this action still may lower the company's WACC.

Respuesta :

Otras preguntas

Introduction to Career Planning Introduction to Career Planning Unit Test 10. Which statement most accurately describes what can happen to jobs in a bad economy

How does a dilation affect the side lengths and angle measures of a figure?

Need to see what the best result

pentagon FGHJK is similar to pentagon MPQST what is the value of x

After the optimism of the Renaissance, neoclassical writers strived for structure, order, and balance. The cultural trend changed from the belief that people we

The perimeter of a square can be determined by the expression 6x + 12 centimeters. If the perimeter of the square is 72 centimeters, what is the value of x ?

what is the circumference of a circle with a radius of 5 units

If the circumference of a circle is 15 pie inches, then what is its diameter

does anybody know this

After reading about Margaret Mead’s studies, what are sociologists MOST likely to say about the role of women in societies? A. Women are always placed in a sen

jepessoa jepessoa · Answer 1 · 2020-01-26T14:07:32+01:00

Answer:

E) Increasing a company's debt ratio will typically increase the marginal costs of both debt and equity financing. However, this action still may lower the company's WACC.

Explanation:

If the company's debt ratio is relatively low (0.4 or less), the cost of borrowing money will be relatively low, even lower than the cost of equity financing, which reduces the total WACC. But as the debt ratio increases (above 0.4), the marginal cost of the debt also increases, which increases the WACC. As the debt ratio approaches 0.6 (threshold that marks an unhealthy debt ratio), the marginal cost of debt and the rate of equity financing both increase, increasing the WACC.