All Else Constant,the Weighted Average Cost of Capital for a Risky,levered

question 6

Multiple Choice

All else constant,the weighted average cost of capital for a risky,levered firm will decrease if:

• A)the dividend yield on the ordinary shares increases
• B)corporate taxes are eliminated
• C)the firm replaces some of its debt with preferred shares
• D)the firm's bonds start selling at a premium rather than at a discount
• E)the market risk premium increases

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Definitions:

Default Risk

The risk that a borrower will not make the contractual interest or principal payments on their debt obligations.

Revenue Collection

The process of gathering funds collected from sales, services, taxes, or other sources by an organization or government.

Short-Term Financing Cost

The interest or other costs associated with borrowing funds for a short duration, typically less than one year.

Standardized Products

Goods or services produced to a uniform specification that ensures consistency and compatibility across different uses and customers.