Which of the following statements is CORRECT? Since debt financing is cheaper th
ID: 2614487 • Letter: W
Question
Which of the following statements is CORRECT? Since debt financing is cheaper than equity financing, raising a company's debt ratio will always reduce its WACC Increasing a company's debt ratio will typically reduce the marginal cost of both debt and equity financing; however, this action still may raise the company's WACC Increasing a company's debt ratio will typically increase the marginal cost of both debt and equity financing; however, this action still may lower the company's WACC Since a firm's beta coefficient it not affected by its use of financial leverage, leverage does not affect the cost of equity Since debt financing raises the firm's financial risk, increasing a company's debt ratio will always increase its WACC
Explanation / Answer
Statement 2 is correct
Rest all are incorrect
Increasing a company's debt ratio will typically reduce the marginal cost of both debt and equity financing however this action still may raise the company's wacc