All Else Equal, If a Firm Increases Its Leverage (Either

question 23

Multiple Choice

All else equal, if a firm increases its leverage (either operating, financial, or both) , its weighted average cost of capital probably will

• A)increase because risk increases.
• B)decrease because risk decreases.
• C)increase because risk decreases.
• D)remain about the same because risk does not change.
• E)change somehow, but more information is needed to determine the direction.

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Definitions:

Investment

Placing capital into assets or projects with the aim of generating growth, returns, or appreciation over time.

Shares

Units of ownership interest in a corporation or financial asset, representing a proportion of the company's capital.

Factory

A building or set of buildings where products are manufactured or assembled primarily by machine.

Disposable Income

The total amount of money available for an individual or household to spend or save after income taxes have been deducted.