1.3.a When debt-to-value ratio of a company rises from 0% to 100%, the

equity cost of capital would

A. keep rising.

B. keep falling.

C. remain constant.

D. rise first and then remain constant.

E. remain constant at first then start to rise.

1.3.b When debt-to-value ratio of a company rises from 0% to 100%, the

debt cost of capital would

A. keep rising.

B. keep falling.

C. remain constant.

D. rise first and then remain constant.

E. remain constant at first then start to rise.

1.3.c When debt-to-value ratio of a company rises from 0% to 100%, the

weighted average cost of capital would

A. keep rising.

B. keep falling.

C. remain constant.

D. rise first and then remain constant.

E. remain constant at first then start to rise.

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1.3.d If you are an investor and you wish to invest in debts issued by this

firm, what of the following choice would be the best level of debt-to-equity ratio of

this firm for you?

A. 20%.

B. 50%.

C. 100%.

D. It doesnt matter.