Question:Which of the following statements concerning capital structure is false.
A. Tax relief on interest payments lowers the WACC.
B. Modigliani and Miller believed that the firm's WACC is not influenced by changes in its capital structure.
C. Under the traditional theory of cost of capital, the cost rises initially and then falls as gearing increases.
D. The traditional view is that there is an optimal capital mix at which the average cost of capital is minimised.
The correct answer is: Under the traditional theory of cost of capital, the cost rises initially and then falls as gearing increases.
Under the traditional theory of cost of capital, the cost declines initially and then rises as gearing increases.
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