As debt is added to the capital structure, the:

Question

Quizplus · Accepted Answer

As debt is added to the capital structure, the implied cost of debt can be expected to rise. This is because the more debt a company has, the riskier it becomes for lenders. Lenders will then demand a higher rate of return to compensate for the increased risk. This increase in the cost of debt will also increase the overall WACC. Therefore, both B and D are not correct choices. A is also inaccurate as the WACC continually declining is not a result of adding debt to the capital structure.

As Debt Is Added to the Capital Structure, The