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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Definitions:

Demand Segmentation

The process of dividing a market into distinct groups of buyers based on different demands and characteristics, allowing for more targeted and effective marketing strategies.

Marginal Cost

The increase in total production costs resulting from producing one additional unit of a good or service.

Senior Citizens

Older adults, often defined by a specific age threshold, considered in various economic models for their consumption, savings, and labor supply behaviors.

Constant Marginal Cost

A situation where the cost of producing one additional unit is the same regardless of the volume produced.