Which of the Following Statements Is CORRECT

question 61

Multiple Choice

Which of the following statements is CORRECT?

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

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Definitions:

Operational Definitions

Specific descriptions of concepts involving observable, measurable conditions and the procedures used to produce or measure them, crucial for replicability in research.

Disconfirmable Hypotheses

Hypotheses that can be tested with the potential to be shown false through evidence or experimentation.

Occam's Razor

A principle suggesting that the simplest explanation is often the correct one when presented with competing hypotheses.

Countertransference

A psychological phenomenon where therapists project their own personal biases, feelings, and experiences onto their patients.