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problem: Which of the following statements is most correct?

[A] Increasing a company's debt ratio will typically reduce the marginal cost of both debt and equity financing; however, it still may raise the company's WACC.

[B] Statements A and C are correct.

[C] None of the statements above is correct. 

[D] Since debt financing raises the firm's financial risk, increasing a company's debt ratio will always increase the company's WACC.

[E] Since debt financing is cheaper than equity financing, raising a company's debt ratio will always reduce the company's WACC.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M919119

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