Which statements are correct? If a firm’s debt is risky, increasing the level of debt:

I. Has no impact on its financial strength.

II. Could lead to an increase in its cost of debt.

III. Is always beneficial to both its debt- and equity-holders.

IV. Beneficial to its equity holders if the cost of debt remains lower than ROIC. Which statements are correct? If a firm’s debt is risky, increasing the level of debt: I. Has no impact on its financial strength. II. This could lead to an increase in its cost of debt. III. Is always beneficial to both its debt- and equity-holders. IV. Beneficial to its equity holders if the cost of debt remains lower than ROIC.

A - 1 and 3, only

B - 2 and 4, only

C - 1 and 4, only

D - 3 and 4, only

Answer rating: 100% (QA)

Increases in the level of debt may increase the profits of firms but it will not increase the firms ... View the full answer