According to the Trade-off Theory, which of the following statements is most correct?
A Since debt financing raises the firm's financial risk, raising a company's debt ratio will always increase the company's WACC.
B Since debt financing is cheaper than equity financing, raising a company's debt ratio will always reduce the company's WACC.
C Increasing a company's debt ratio will typically reduce the marginal cost of both debt and equity financing; however, it still may raise the company's WACC.
D Statements a and c are correct.
E None of the statements above is correct.© BrainMass Inc. brainmass.com December 24, 2021, 7:18 pm ad1c9bdddf
The question is answered in a couple of sentences which include a caveat.