All Else Equal, If a Firm Increases Its Leverage (Either

question 23

Multiple Choice

All else equal, if a firm increases its leverage (either operating, financial, or both) , its weighted average cost of capital probably will

• A)increase because risk increases.
• B)decrease because risk decreases.
• C)increase because risk decreases.
• D)remain about the same because risk does not change.
• E)change somehow, but more information is needed to determine the direction.

---

Definitions:

Positive Slope

A line or curve on a graph that moves upwards from left to right, indicating a positive relationship between two variables.

Variable on the Vertical Axis

In a graph, the variable that is represented on the vertical (y) axis, which is typically the dependent variable in an analysis.

Variable on the Horizontal Axis

Represents independent variables in graphical representations, typically plotted along the x-axis.

Slope

In mathematics, it refers to the measure of the steepness, incline, or grade of a line, often calculated as the ratio of the vertical change to the horizontal change between two points on the line.