Assume That the Risk-Free Interest Rate in the United States

Multiple Choice

Assume that the risk-free interest rate in the United States is the same as that in Country M. Assume that the government of Country M is more likely to rescue local firms that experience financial problems. Other things being equal, Country M's firms are likely to use a ____ degree of financial leverage than U.S. firms. If a firm based in Country M has the same degree of financial leverage and the same operating characteristics as a U.S. firm, its cost of capital will likely be ____ than that of the U.S. firm.​

A) ​higher; higher
B) ​higher; lower
C) ​lower; lower
D) ​lower; higher