If k_a represents the average cost of capital, there is a positive correlation between an increase in k_a and an increase in the value of the firm.

Question

Quizplus · Accepted Answer

There is not necessarily a positive correlation between an increase in the average cost of capital and an increase in the value of the firm. In some cases, raising the cost of capital can decrease the value of the firm, such as if the firm is unable to generate enough profits to cover the higher cost of financing.

If Ka Represents the Average Cost of Capital, There Is

If K_a Represents the Average Cost of Capital, There Is