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As the Amount of a Debt a Firm Uses Increases

Question 47

Multiple Choice

As the amount of a debt a firm uses increases,


A) the expected return on debt increases, but its promised return remains the same.
B) the cost of debt increases, but the cost of equity remains unchanged.
C) the costs of both debt and equity increase, but the weighted average cost of capital for the firm remains unchanged.
D) the costs of both debt and equity increase, which will cause the weighted average cost of capital for the firm to increase.

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