Consider the following equation for the question(s) below.

-Which of the following statements is FALSE?
A) With no debt, the WACC is equal to the unlevered equity cost of capital.
B) With perfect capital markets, a firm's WACC is dependent on its capital structure and is equal to its equity cost of capital only if the firm is unlevered.
C) As the firm borrows at the low cost of capital for debt, its equity cost of capital rises, but the net effect is that the firm's WACC is unchanged.
D) As debt has a lower cost of capital than equity, higher leverage lowers a firm's WACC.

Question

Consider the following equation for the question(s) below.
 
-Which of the following statements is FALSE?
A) With no debt, the WACC is equal to the unlevered equity cost of capital. 
B) With perfect capital markets, a firm's WACC is dependent on its capital structure and is equal to its equity cost of capital only if the firm is unlevered. 
C) As the firm borrows at the low cost of capital for debt, its equity cost of capital rises, but the net effect is that the firm's WACC is unchanged. 
D) As debt has a lower cost of capital than equity, higher leverage lowers a firm's WACC.

Quizplus · Accepted Answer

B) With perfect capital markets, a firm's WACC is independent of its capital structure and is equal to its equity cost of capital only if the firm is unlevered.

Consider the Following Equation for the Question(s) Below