If Interest Expense Lowers Taxes, Why Does the WACC Not

Multiple Choice

If interest expense lowers taxes, why does the WACC not decrease indefinitely with the addition of more debt?

A) The tax shield effect of debt will result in a lower cost of equity.
B) Increasing debt too much can result in a greater likelihood of firm failure (financial distress) .
C) A firm's common stock price will not be affected by the amount of debt a firm uses.
D) Too much common equity increases the probability of bankruptcy.