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    zeeshanmustafa's Avatar
    zeeshanmustafa Posts: 2, Reputation: 1
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    #1

    Aug 4, 2010, 10:54 AM
    Which of the following statement is INCORRECT regarding financial leverage ?
    Which of the following statement is INCORRECT regarding financial leverage ?
    Financial leverage can dramatically alter the payoffs to the shareholders.
    Financial leverage refers to the extent to which a firm relies on the debt.
    Financial leverage must affect the overall cost of capital in any condition.
    Financial leverage may not affect the overall cost of capital.
    ArcSine's Avatar
    ArcSine Posts: 969, Reputation: 106
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    #2

    Aug 4, 2010, 12:15 PM
    Hint #1: Read https://www.askmehelpdesk.com/financ...-b-u-font.html

    Hint #2: Suppose a situation involving a levered firm, in which the debt and the equity have the same after-tax capital cost. What happens to the WACC if the leverage is increased (assuming the specific component costs of the debt and equity remain unchanged)?
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