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

question 18

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:

Kurt Lewin

A German-American psychologist known for his pioneering work in social psychology, group dynamics, and organizational development, often considered the father of modern social psychology.

Environmental Forces

External factors such as economic, political, social, technological, and legal conditions that influence an organization's operations and outcomes.

Learned Behavior

Behaviors or actions that are acquired or modified over time in response to the surrounding environment.

Psychology

The scientific study of the human mind and its functions, especially those affecting behavior in a given context, exploring aspects such as perception, cognition, emotion, and interpersonal relationships.