As Debt Is Substituted for Equity in the Capital Structure

question 51

Multiple Choice

As debt is substituted for equity in the capital structure and the debt ratio increases, all of thefollowing statements about the component costs of capital are true EXCEPT

• A) the cost of debt continually increases.
• B) the overall cost of capital continually increases.
• C) the cost of equity continually increases.
• D) the overall cost of capital first declines, reaches a minimum, and then rises again.

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Definitions:

Hybrid Systems

Systems that combine elements from different domains or technologies, such as digital and analog processes or mechanical and electronic components.

Unidirectional Communication

Communication that flows in one direction only, from the sender to the receiver, without an expectation for a response or feedback.

Communications Technology

Tools and platforms that facilitate the exchange of information through electronic means, including the internet, social media, and mobile devices.

Intrusive

Undesirably aggressive or imposing, often interrupting privacy or personal space.