Which statement about capital structure is the most correct a The more the company borrows, the lower will be the after tax WACC This increases the present value of the firm free cash flows which represents the value of the levered firm b A company should always try to reduce its debt because of the high bankruptcy risk associated with debt A company should aim to have 100 equity financing if it is possible c Because the cost of debt is cheaper than the cost of equity, a company should use as much debt as possible to finance their projects d The more the company borrows, the higher will be its tax shields, therefore a company will always prefer to issue debt than equity e Lenders rank ahead of shareholders when the company goes bankrupt To protect shareholders interests, it is always preferred to issue equity rather than debt

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Question: Which statement about capital structure is the most correct? a. The more the company borrows, the lower will be the after-tax WACC. This increases the

Which statement about capital structure is the most correct?

The more the company borrows, the lower will be the after-tax WACC. This increases the present value of the firm free cash flows which represents the value of the levered firm.

A company should always try to reduce its debt because of the high bankruptcy risk associated with debt. A company should aim to have 100% equity financing if it is possible.

Because the cost of debt is cheaper than the cost of equity, a company should use as much debt as possible to finance their projects

The more the company borrows, the higher will be its tax shields, therefore a company will always prefer to issue debt than equity.

Lenders rank ahead of shareholders when the company goes bankrupt. To protect shareholders interests, it is always preferred to issue equity rather than debt.

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