Which of the Following Statements Is CORRECT

question 50

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:

Black Lung Disease

A common name for pneumoconiosis, a lung disease caused by inhaling coal dust over a long period, affecting coal miners and workers in coal processing facilities.

SIDS

Sudden Infant Death Syndrome, the unexplained death, usually during sleep, of a seemingly healthy baby less than a year old.

Apneic Episodes

Periods during which breathing stops or is markedly reduced during sleep.

RDS

Respiratory distress syndrome, a condition often seen in premature infants causing them difficulty in breathing due to undeveloped lungs.