Asked by
Ki?uu Duyênn
on Dec 09, 2024
Verified
As the debt-equity ratio of a firm rises, the:
A) Cost of debt declines.
B) Cost of equity declines.
C) Weighted average cost of capital increases, at least initially.
D) Equity risk also rises.
E) Capital structure of the firm remains constant.
Debt-Equity Ratio
A metric for evaluating a firm's financial leverage, determined by dividing its total debts by the equity held by shareholders.
Cost of Debt
The actual rate a firm incurs on its overall debt, representing the cost of acquiring funds.
Equity Risk
The risk of loss associated with fluctuations in the price of equities or stocks.
- Become familiar with the influence of financial leverage on both the Weighted Average Cost of Capital and the company's equity cost.
Verified Answer
JA
Learning Objectives
- Become familiar with the influence of financial leverage on both the Weighted Average Cost of Capital and the company's equity cost.