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12. The cost of capital on equity is closest to the firm's cost of capital, when the debt ratio is (A) at 99%, (B) at 50%, (C) at 1%. Answer: 13. What event(s) or action(s) below will likely cause the cost of capital of a firm's existing debt to increase? (A) A new tax law very friendly to the industry, (B) large write-offs of the firm's assets, (C) a better-than- expected earnings report, (D) more heavily invested in risky projects. Answer: 14. A firm, its debt, and equity have of 1.0, 0.5, and 3.0, respectively. What is the firm's equity ratio? Answer: 15. When a firm issues debt to repurchase its stock, the cost of capital of its equity will likely (A) increase, (B) decrease. (C) remain the same