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For a given firm, management can decide its capital structure (i.e. which mix of debt and equity is being used to finance the firm). By
For a given firm, management can decide its capital structure (i.e. which mix of debt and equity is being used to finance the firm). By doing so, management determines the financial everage of the firm. Which below statement is correct? a. Decreasing the proportion of cheaper debt being used in the capital structure of a given firm will likely increase the expected return on equity, but also lead in a parallel manner to an increase to the risk borne by equity. b. Decreasing the proportion of cheaper debt being used in the capital structure of a given firm will likely decrease the expected return on equity, but also lead in a parallel manner to an increase to the risk borne by equity. c. Decreasing the proportion of cheaper debt being used in the capital structure of a given firm will likely increase the expected return on equity, but also lead in a parallel manner to a decrease to the risk borne by equity. d. Decreasing the proportion of cheaper debt being used in the capital structure of a given firm will likely decrease the expected return on equity, but also lead in a parallel manner to a decrease to the risk borne by equity
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