Which of the Following Statements Is CORRECT

question 25

Multiple Choice

Which of the following statements is CORRECT?

• A)Since debt financing raises the firm's financial risk, increasing a company's debt ratio will always increase its WACC.
• B)Since debt financing is cheaper than equity financing, raising a company's debt ratio will always reduce its WACC.
• C)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.
• D)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.
• E)Since a firm's beta coefficient it not affected by its use of financial leverage, leverage does not affect the cost of equity.

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Definitions:

Human Bias

Refers to the unconscious or conscious prejudices and preferences that affect decision-making and perception.

Legitimate Power

The authority a person holds as a result of their position or role within an organization, which is recognized and respected by others.

Formal Authority

The power granted to an individual due to their position or role within an organization, enabling them to make decisions and enforce rules.

Participative Leadership

A leadership style in which the leader involves team members in decision-making processes and goal setting, fostering a sense of ownership and collaboration.