Which of the Following Statements Is CORRECT

question 36

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.

---

Definitions:

Interest Payable

The amount of interest expense that has been incurred (accumulated) but not yet paid as of a specific date.

Interest Expense

The cost incurred by an entity for borrowed funds, typically reported on the income statement.

Accrued Liability

Liabilities recognized on the books before they’re paid for, representing expenses that have been incurred but not yet settled in cash.

Current Liabilities

Short-term financial obligations of a company that are due to be paid within one year, including accounts payable, short-term loans, and accrued expenses.