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 the following statements about the component costs of capital are true EXCEPT

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