Cynergy Inc.currently has a debt-equity ratio of 0.70, an after-tax cost of debt of 7.5%, and a cost of equity of 14%.If the firm changes its debt-equity ratio to 0.40, it will:
A)Decrease the firm's WACC.
B)Increase the firm's total debt.
C)Cause the NPV of projects under consideration to decrease.
D)Not have an effect on the firm's capital budgeting decisions.

Question

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The Answer of Cynergy Inc.currently has a debt-equity ratio of 0.70, an after-tax cost of debt of 7.5%, and a cost of equity of 14%.If the firm changes its debt-equity ratio to 0.40, it will:
A)Decrease the firm's WACC.
B)Increase the firm's total debt.
C)Cause the NPV of projects under consideration to decrease.
D)Not have an effect on the firm's capital budgeting decisions.