If the firm issues debentures instead of preferred stock to raise additional funds, the cost of capital rises. 1) True 2) False As the firm increases its use of equity instead of debt financing, the cost of equity rises. 1) True 2) False As a firm uses excessive amounts of debt financing, 1. its debt ratio increases 2. the value of its stock declines 3. its cost of capital increases 1) 1 and 2 2) 1 and 3 3) 2 and 3 4) 1, 2, and 3