Changing the Capital Structure by Adding Debt Will Not

question 101

Multiple Choice

Changing the capital structure by adding debt will not:

• A)increase the return that shareholders require.
• B)leave the WACC unaffected.
• C)decrease debt holder risk.
• D)increase the cost of debt.

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Definitions:

Mutual Influence

Mutual influence is the reciprocal effect individuals or groups have on each other's attitudes, behaviors, or opinions, often leading to changes or adjustments in response to the interaction.

True Group

A collection of individuals who interact with one another, share common goals, and see themselves as part of a cohesive unit.

Entitativity

The degree to which a group is perceived as being a coherent and distinct entity, often based on the members' similarity, proximity, and shared goals.

Perceived Cohesiveness

The extent to which members of a group see it as unified and bound together.