According to which of the following approaches, the cost of capital declines when the degree of…
Under the Net Income Approach, increasing financial leverage reduces the overall cost of capital. Greater use of cheaper debt raises the value of the firm because the costs…
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According to which of the following approaches, the cost of capital declines when the degree of financial leverage increases?
Answer and explanation
Correct answer B
Under the Net Income Approach, increasing financial leverage reduces the overall cost of capital. Greater use of cheaper debt raises the value of the firm because the costs of debt and equity are treated as constant.
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Telangana SET (TG SET)