According to Proposition II, the cost of equity increases as more debt is issued, but the weighted average cost of capital remains unchanged.

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According to Proposition II, the cost of equity increases as more debt is issued because equity holders require a higher return to compensate for the increased financial risk. However, the weighted average cost of capital remains unchanged because the cost of debt is typically lower than the cost of equity, so adding more debt can help offset the higher cost of equity.

According to Proposition II, the Cost of Equity Increases as More