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1.3.a When debt-to-value ratio of a company rises from 0% to 100%, the
equity cost of capital would
A. keep rising.
B. keep falling.
C. remain constant.
D. rise first and then remain constant.
E. remain constant at first then start to rise.
1.3.b When debt-to-value ratio of a company rises from 0% to 100%, the
debt cost of capital would
A. keep rising.
B. keep falling.
C. remain constant.
D. rise first and then remain constant.
E. remain constant at first then start to rise.
1.3.c When debt-to-value ratio of a company rises from 0% to 100%, the
weighted average cost of capital would
A. keep rising.
B. keep falling.
C. remain constant.
D. rise first and then remain constant.
E. remain constant at first then start to rise.
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1.3.d If you are an investor and you wish to invest in debts issued by this
firm, what of the following choice would be the best level of debt-to-equity ratio of
this firm for you?
A. 20%.
B. 50%.
C. 100%.
D. It doesnt matter.
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