Encircle one numeral for the correct statement.

a. If with a substitution of debt for common stock the costs of both common stock and debt increase, then the WACC will 

(1) Increase.

(2) Decrease.

(3) Stay the same.

(4) Increase, decrease, or stay the same.

b. If debt is substituted for common stock, one would logically expect the cost of stock equity to 

(1) Increase.

(2) Decrease.

(3) Stay the same.

(4) Increase, decrease, or stay the same.

c. In the absence of bankruptcy costs and corporate taxes, a firm with more debt than the market thinks is rational will sell 

(1) At the same value as an identical firm properly financed (as viewed by the market).

(2) At less than a firm properly financed.

(3) At more than a firm properly financed.

(4) At the same value, or less than, or more than, depending on risk preferences.