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:

Neuroticism

Personality trait characterized by anxiety, fear, moodiness, worry, envy, frustration, jealousy, and loneliness.

Openness

Refers to one's willingness to consider new ideas, be open to diverse experiences, and exhibit transparency in thoughts and actions.

Extroversion

A personality trait characterized by sociability, talkativeness, assertiveness, and high levels of emotional expressiveness.

The Big Five Model

A personality framework consisting of five broad dimensions used to describe human personality: openness, conscientiousness, extraversion, agreeableness, and neuroticism.