Question 2 (2 points) QRS Corp is looking to borrow some money to finance a new investment. The addition of more debt will change their capital structure causing their WACC to change. How might this change in capital structure also affect QRS's WACC in other ways as well? As leverage increases, the debt becomes riskier, so debtholders are likely to demand a higher return. As debtholders are paid only after shareholders, increasing debt will have limited impact on equity shareholders. Increasing leverage lowers the debt-equity ratio and reduces the financial risk to shareholders resulting in a lower beta. Both a) and b). Previous Page Next Page Page 2 of 20