Question
Which of the following statements are correct? When a company increases its debt ratio, the costs of equity and debt capital both increase. Therefore, the
Which of the following statements are correct?
When a company increases its debt ratio, the costs of equity and debt capital both increase. Therefore, the WACC must also increase.
The capital structure that maximizes stock price is generally the capital structure that also maximizes earnings per share.
All else equal, an increase in the corporate tax rate would tend to encourage a company to increase its debt ratio.
Since debt financing raises that firm's financial risk, increasing a company's debt ratio will always increase the company's WACC
Since debt financing is cheaper than equity financing, increasing a company's debt ratio will always reduce the company's WACC.
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