When Corporate Taxes Are Considered, How Does Leverage Affect the WACC

question 58

Multiple Choice

When corporate taxes are considered, how does leverage affect the WACC?

• A)an increase in leverage will be offset by a decrease in equity financing, thus leaving WACC unchanged.
• B)changes in leverage will affect the WACC only if the interest rate on debt changes.
• C)increased leverage will increase the WACC.
• D)increased leverage will decrease the WACC.

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Definitions:

Effortful Control

The inhibition of impulsive or dominant actions.

Situational Compliance

The act of conforming to the demands or requirements of a specific situation, possibly against one's own preferences.

Action

Complex, coordinated behaviors.

Rule Violations

Actions or behaviors that transgress established rules, guidelines, or expectations within a particular context.