A fiRm Currently Has a Debt-Equity Ratio of

question 139

Multiple Choice

A firm currently has a debt-equity ratio of .50, an after-tax cost of debt of 8%, and a cost of equity of 12%. The firm changes its debt-equity ratio to .40, all else constant. This change will:

• A) Increase the total debt level of the firm.
• B) Decrease the firm's WACC.
• C) Increase the cost of equity financing.
• D) Cause the NPV of projects under consideration to decrease.
• E) Not affect the firm's capital budgeting decisions.

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Definitions:

MCC

Motor Control Center - a centralized assembly of electric motor controls in a compact and structured form.

CML

Critical Material List - a document specifying all materials essential for a manufacturing process, including their standards, grades, and quantities.

Minimum Amount of Material

A concept in manufacturing and design that aims to utilize the least amount of material necessary for functionality, reducing waste and cost.

Symbol

A visual representation or sign that stands for its object by convention, association, or resemblance, commonly used in technical diagrams to represent standard components or functions.