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2 years ago
If interest expense lowers taxes, why does the WACC not decrease indefinitely with the addition of more debt?
A) The tax shield effect of debt will result in a lower cost of equity.
B) Increasing debt too much can result in a greater likelihood of firm failure (financial distress).
C) A firm's common stock price will not be affected by the amount of debt a firm uses.
D) Too much common equity increases the probability of bankruptcy.
Textbook 

Financial Management: Principles and Applications


Edition: 13th
Authors:
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