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Q58 Single choice

In referring to the graph of a firm's cost of capital, if e is the current position, which one of the following statements best explains the saucer or U-shaped curve'?

A
The composition of debt and equity does not affect the firm's cost of capital.
B
The cost of capital is almost always favorably influenced by increases in financial leverage.
C
The cost of capital is almost always negatively influenced by increases in financial leverage.
D
Use of at least some debt financing will enhance the value of the firm.

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