QUESTION 5 Which of the following is true: If the manager increases the firm\'s
ID: 2795090 • Letter: Q
Question
QUESTION 5
Which of the following is true: If the manager increases the firm's D/E ratio:
A. The firm's stock will have a higher expected return and less risk.
B. The firm's stock will have a lower expected return and more risk.
C. The firm's stock will have a higher expected return and more risk.
D. The firm's stock will have a lower expected return and less risk.
A. The firm's stock will have a higher expected return and less risk.
B. The firm's stock will have a lower expected return and more risk.
C. The firm's stock will have a higher expected return and more risk.
D. The firm's stock will have a lower expected return and less risk.
Explanation / Answer
Dear student...Thank you for using chegg...correct answer is C. The firm's stock will have a higher expected return and more risk.
Since increase in debt equity ratio would mean more debt in the firm which would increase risk and would result in higher expected return