your friend makes the following argument: if there are no transaction costs, taxes or information asymmetry, as we increase the leverage of the firm, the risk of equity will increase. Consequently, stock holders will require a higher rate of return. the firm's debt will also become riskier and so bondholders will require a higher rate of return. Hence the firm's weighted average cost of capital will increase. is his statement true or false?

Answer rating: 100% (QA)

The detailed answer for the above question is provided below Your friends statement is true but with some important nuances to consider Increasing Lev... View the full answer