Which of the Following Statements Best Describes WACC

question 81

Multiple Choice

Which of the following statements best describes WACC?

• A)Since debt financing raises the firm's financial risk, increasing a company's debt ratio will always increase its WACC.
• B)Since debt financing is cheaper than equity financing, raising a company's debt ratio will always reduce its WACC.
• C)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.
• D)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.