According to ___________, a firm's cost of equity increases with greater debt financing, but the WACC remains unchanged.

Question

Quizplus · Accepted Answer

M&M Proposition II without taxes states that a firm's cost of equity increases as the firm increases its leverage due to the higher risk perceived by equity holders, but the overall Weighted Average Cost of Capital (WACC) remains unchanged because the cost of debt is less expensive than equity and is not taxed in this scenario.

According to ___________, a Firm's Cost of Equity Increases with Greater