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(Solution document) Which of the following statements is CORRECT?


Which of the following statements is CORRECT?


*Since debt financing is cheaper than equity financing, raising a company's debt ratio will always reduce its WACC.

*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.

*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.

*Since a firm's beta coefficient it not affected by its use of financial leverage, leverage does not affect the cost of equity.

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

 







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