As Debt Is Substituted for Equity in the Capital Structure

Multiple Choice

As debt is substituted for equity in the capital structure and the debt ratio increases, all of thefollowing statements about the component costs of capital are true EXCEPT

A) the cost of debt continually increases.
B) the overall cost of capital continually increases.
C) the cost of equity continually increases.
D) the overall cost of capital first declines, reaches a minimum, and then rises again.