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:

Regression Equation

A mathematical formula that describes the relationship between dependent and independent variables, often used for prediction.

Second-order Polynomial

A polynomial equation of degree two, which can be expressed in the form ax^2 + bx + c, where a, b, and c are constants.

Parabola

A symmetric, U-shaped curve represented by a quadratic function, found in various mathematical and physical contexts.

Concave

A shape or function curving inward, resembling the interior of a circle or sphere.