Select all that applyWhat are some possible consequences of raising debt to fool the market about a firm's value?Multiple select question.When the market discovers the truth, share prices will drop.The probability and expected costs of financial distress will decrease if debt rises above the optimal level.When the market discovers the truth, share prices will increase.The probability and expected costs of financial distress will increase if debt rises above the optimal level.

When raising debt to fool the market, the stock price will Blank______ when the market realizes the company tried to fool it.Multiple choice question.fallremain the sameincrease

If a firm increases the proportion of debt in the capital structure:A.The cost of debt will increase but there will be no impact on the cost of equity.B.The cost of equity and the cost of debt will both increase, but its cost of capital will fall.C.The cost of equity will increase, but the impact on the firm’s cost of capital is unclear in the absence of specific information about financial distress costs and the firm’s tax position.D.The cost of equity will increase but the cost of debt will decrease.

As a firm increases the amount of debt it uses to fund its assets the:Select one:a.WACC will continually decline.b.WACC will continually increase.c.cost of debt can be expected to rise.d.WACC will be unaffected.Clear my choice

A stock price fall may come from Blank______.Multiple choice question.a decrease in debtan increase in debt

3. Which of the following statements is FALSE?Video: 5.F. P54-72 (Capital structure with other market imperfections 1)Group of answer choicesD) Firms have an incentive to increase leverage to exploit the tax benefits of debt. But with too much debt, they are more likely to risk default and incur financial distress costs.A) The tradeoff theory weighs the costs of debt that result from shielding cash flows from taxes against the benefits from the effects of financial distress associated with leverage.C) According to the tradeoff theory, the total value of a levered firm equals the value of the firm without leverage plus the present value of the tax savings from debt, less the present value of financial distress costs.B) Leverage has costs as well as benefits.