Consider the Following Equation for the Question(s) Below

question 98

Multiple Choice

Consider the following equation for the question(s) below.

-Which of the following statements is FALSE?

• A) With no debt, the WACC is equal to the unlevered equity cost of capital.
• B) With perfect capital markets, a firm's WACC is dependent on its capital structure and is equal to its equity cost of capital only if the firm is unlevered.
• C) As the firm borrows at the low cost of capital for debt, its equity cost of capital rises, but the net effect is that the firm's WACC is unchanged.
• D) As debt has a lower cost of capital than equity, higher leverage lowers a firm's WACC.

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