Explain how each of the following changes will affect a company’s range of earnings chart such as that shown in Figure 6.2. How would each of the changes affect the attractiveness of increased debt financing relative to increased equity financing?

a. An increase in the interest rate on the new debt to be raised.

b. An increase in the company’s stock price.

c. Increased uncertainty about the issuing company’s future earnings.

d. Increased cash dividends paid on common stock.

e. An increase in the amount of debt the company already has outstanding.

 LO.1