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:

Neutralize

To render something harmless by applying an opposite force or effect, such as neutralizing an acid with a base.

Denature

The process by which a protein loses its three-dimensional structure due to external stress or compounds, affecting its functionality.

Enzyme

Biological molecules that significantly speed up the rate of virtually all of the chemical reactions that take place within cells.

Nonpolar Covalent Bond

A type of chemical bond where two atoms share a pair of electrons equally, usually between identical or similar atoms.