Reference no: EM131595299

Which of the following statements about the corporate cost of capital is most correct?

Because the use of debt financing increases a business’s financial risk, increasing the debt ratio will always increase the corporate cost of capital.

Because debt financing is less costly than equity financing, increasing the debt ratio will always reduce the corporate cost of capital.

Increasing the debt ratio typically will reduce the marginal cost of both debt and equity; however, it still may increase the corporate cost of capital.

Statements a. and c. are correct.

None of the above statements is correct.