Which of the Following Statements Is Most Correct

question 20

Multiple Choice

Which of the following statements is most correct?

• A) Since debt financing raises the firm's financial risk, raising a company's debt ratio will always increase the company's WACC.
• B) Since debt financing is cheaper than equity financing, raising a company's debt ratio will always reduce the company's WACC.
• C) Increasing a company's debt ratio will typically reduce the marginal cost of both debt and equity financing; however, it still may raise the company's WACC.
• D) Statements a and c are correct.
• E) None of the statements above is correct.

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