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AA is considering changing its capital structure. The following information is currently relevant to AA:
The gearing rating raising the new debt finance will be 50%.
Which THREE of the following statement about the impact of AA's change in capital structure are true under Modigliani and Miler's capital structure theory with tax.
Suggested Answer: B, E, F
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3 comments · newest first
JE
Jesus
3 days ago
I practiced a similar question where the WACC decreased with more debt, so I feel like B could be a possibility here too.
SA
Sang
8 days ago
I'm not entirely sure, but I think if AA increases its debt, the cost of equity should rise, which could make C correct.
BU
Buddy
13 days ago
I remember that under Modigliani and Miller with taxes, the cost of debt can actually remain unchanged, so I think F might be true.