Increasing debt financing will do all of the following except:

Question

Quizplus · Accepted Answer

Increasing debt financing can lead to a higher interest rate on debt (A), increased risk for common stockholders (B), and higher return demands from stockholders (C). However, it does not have any direct effect on decreasing the firm's cost of common equity (D). In fact, taking on too much debt can increase the perceived risk of the company and lead to higher cost of equity as well.

Increasing Debt Financing Will Do All of the Following Except