1. Which of the following is (are) TRUE? Why? a) The weighted average cost of de

Question

1.     Which of the following is (are) TRUE?  Why?

a)     The weighted average cost of debt using market values is less than the cost of debt using book values because the price of the debt is below the amount owed

b)     If beta increases from the baseline assumption of 1.20, the cost of equity using the CAPM model will fall.

c)     Assuming debt and equity costs do not rise as more debt is added to the capital structure (i.e., the amounts of debt and equity is called capital structure), it would make sense for the firm to have more debt to reduce its WACC.

d)     b) and c)

e)     a) and b)

f)     a) and c)

g)     All of the above are TRUE

Explanation / Answer

e)a) and b)

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