An increase in the Debt/Equity ratio as one moves forwardtowards the optimal cap

Question

An increase in the Debt/Equity ratio as one moves forwardtowards the optimal capital structure results in:

2

The weighted cost of capital for a company will decrease if:

3

The properly determined weighted cost of capital:

1

An increase in the Debt/Equity ratio as one moves forwardtowards the optimal capital structure results in:

a. An increase in the cost of equity
b. A decrease in the cost of equity and debt c. Both a and b d. Both b and c

2

The weighted cost of capital for a company will decrease if:

a. The business risk of the company declines
b. The financial risk of the company declines c. The proportions of capital raised from debt increases d. Both a and b e. a, b, and c

3

The properly determined weighted cost of capital:

a. reflects incremental or expected future costs from eachsource of capital
b. reflects the target structure based on market values of debt,preferred stock, and common stock c. Reflects the historical manner in which the company hasraised capital. d. Both a and b e. None of the above

Explanation / Answer

because cost of equity rises with leverages and debts.
2) b because financial risk is associated with the capitalstructure within the company. the higher level of debt's proportionis, the higher the financial risk
3) d

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