Which Is Not True About Debt Financing and the Weighted

question 12

Multiple Choice

Which is not true about debt financing and the weighted average cost of capital?

• A) Debt is usually the cheapest source of financing
• B) As the level of debt increases beyond the optimum capital structure,the cost of capital increases
• C) No debt in the firm's capital structure will minimize the firm's weighted-average cost of capital
• D) The cost of debt and the weighted average cost of capital both go down as the tax rate goes up.

---

Definitions:

Pretax Return

The profit a company generates before any taxes are deducted, often used to analyze the profitability of core business activities.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period, used to assess the profitability of an investment.

Salvage Value

The estimated monetary value of an asset at the cessation of its useful duration.

Labor Costs

Expenses related to compensating employees for their work, including wages, salaries, and benefits.