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:

Psychosis

A state in which a person’s perceptions and thoughts are fundamentally removed from reality.

Psychological State

An individual's mental condition at a certain time, which can be influenced by emotions, thoughts, behaviors, and environmental factors.

Removed From Reality

A state or condition in which an individual or perception is disconnected from true or actual life circumstances.

Splitting

A psychological mechanism where one views self and others as "all good" or "all bad," failing to integrate positive and negative qualities.