If a Firm Chose to Increase Its Debt Ratio from 20

question 7

Multiple Choice

If a firm chose to increase its debt ratio from 20% to 40%, what is the potential risk?

• A) The average cost of capital would most likely rise.
• B) The price of the firm's common stock would definitely decline.
• C) If economic forces cause a reduction of sales, the firm's EPS might decline.
• D) The firm's WACC might decline.

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Definitions:

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