Which of the Following Statements Is CORRECT

question 61

Multiple Choice

Which of the following statements is CORRECT?

• A) Since debt financing is cheaper than equity financing, raising a company's debt ratio will always reduce its WACC.
• B) Increasing a company's debt ratio will typically reduce the marginal cost of both debt and equity financing.However, this action still may raise the company's WACC.
• C) Increasing a company's debt ratio will typically increase the marginal cost of both debt and equity financing.However, this action still may lower the company's WACC.
• D) Since a firm's beta coefficient it not affected by its use of financial leverage, leverage does not affect the cost of equity.
• E) Since debt financing raises the firm's financial risk, increasing a company's debt ratio will always increase its WACC.

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Definitions:

Distribution of Income

The way in which the total income earned in an economy is divided among its citizens or factors of production.

Resource Reallocation

The process of redistributing resources from less productive to more productive uses to increase overall efficiency or to meet strategic objectives.

Society's View

The collective opinions, attitudes, and values of a community or population towards various issues, concepts, or entities.

Economic Function

The role or impact that an entity or process has within the economy, such as production, distribution, and consumption of goods and services.