What is the likely effect on a firm's market value as
its debt-to-equity ratio increases?

Question

Answer

The firm's market value initially increases due to a lower overall cost of capital, but may eventually decrease due to rising bankruptcy risk

Answer

Interest payments on debt reduce market value because
they are not tax deductible

Answer

A higher debt-to-equity ratio always leads to higher
stock prices, regardless of risk levels

Answer

The firm’s market value continues to increase indefinitely
as debt is cheaper than equity.

Crowdly