Which statement about capital structure is the most correct? a. A company in a risky...
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Accounting
Which statement about capital structure is the most correct?
a.
A company in a risky industry with volatile cash flows will usually choose to take less debt than a company in a stable industry.
b.
The more the company borrows, the lower will be the after-tax WACC. This increases the present value of the firm free cash flows which represents the value of the levered firm. Therefore, a firm should always seek to borrow as much debt as possible.
c.
The more the company borrows, the higher will be its tax shields, therefore a company will always prefer to issue debt than equity.
d.
Lenders rank ahead of shareholders when the company goes bankrupt. This increased risk for shareholders means the cost of equity is lower than the cost of debt.
e.
Because the cost of debt is cheaper than the cost of equity, a company should use as much debt as possible to finance their projects
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