Which of the following consequences of increasing the debt of the firm causes the WACC to increase?

I) Debtholders having a prior claim to stockholders

II) Interest rate tax shield

III) The increased risk of bankruptcy

IV The cost of debt being less than the cost of

equity

Answer Choices

A. I & III

B. I & II

C. I, II, and IV

D. I, III, and IV

E. II and IV