The most acceptable view of capital structure, according to the text, is that the weighted average cost of capital
A) first falls with moderate levels of leverage and then increases as a firm's leverage becomes high.
B) does not change with leverage.
C) increases proportionately with increases in leverage.
D) increases with moderate amounts of leverage and then falls.

Question

Quizplus · Accepted Answer

The text indicates that the most acceptable view of capital structure is that the weighted average cost of capital first falls with moderate levels of leverage and then increases as a firm's leverage becomes high. This is due to the fact that as a firm takes on more debt, the cost of that debt increases, leading to a higher overall cost of capital.

The Most Acceptable View of Capital Structure, According to the Text