A firm currently has a debt-equity ratio of 50%, an after-tax cost of debt of 8%, and
Fantastic news! We've Found the answer you've been seeking!
Question:
A firm currently has a debt-equity ratio of 50%, an after-tax cost of debt of 8%, and a cost of equity of 12%. The firm changes its debt-equity ratio to 40%, all else constant. This change will:
• Increase the total debt level of the firm.
• Decrease the cost of equity financing.
• Cause the NPV of projects under consideration to decrease.
• Decrease the firm's WACC.
• Not affect the firm's capital budgeting decisions.
Related Book For
Taxes and Business Strategy A Planning Approach
ISBN: 9780132752671
5th edition
Authors: Myron Scholes, Mark Wolfson, Merle Erickson, Michelle Hanlon
Posted Date: