Question: Assuming Rubber Round's current capital structure is all equity. If the company decides to borrow $500,000 from the bank, what is the likely effect on

Assuming Rubber Round's current capital structure is all equity. If the company decides to borrow $500,000 from the bank, what is the likely effect on the cost of equity?

1) No change •

2) The cost of equity will decrease proportionally with the cost of debt •

3) The cost of equity will increase proportionally with the cost of debt •

4) The cost of equity will increase with the increase of the debt but the lever of increase is not proportional.

5) All of the above

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