If R₀ exceeds R_B then A)R_S increases with leverage. B)R_WACC increases with leverage. C)R_S decreases with leverage. D)R_S remains constant as leverage changes. E)R_S = R_B.

Name: If R 0 exceeds R B then A)R S increases with leverage. B)R WACC increases with leverage. C)R S decreases with leverage. D)R S remains constant as leverage changes. E)R S = R B .
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Question

Quizplus · Accepted Answer

When R₀ exceeds R_B, the cost of equity (R_S) increases with leverage due to the increased risk to equity holders.

If R0 Exceeds RB Then

If R₀ Exceeds R_B Then