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    5. According to the Net Income Approach, what happens to the firm’s value as debt increases?

    Question

    According to the Net Income Approach, what happens to

    the firm’s value as debt increases?
    A It remains constant Correct Answer Incorrect Answer
    B It decreases Correct Answer Incorrect Answer
    C It increases Correct Answer Incorrect Answer
    D It fluctuates Correct Answer Incorrect Answer

    Solution

    Under the Net Income Approach, use of cheaper debt increases firm value by lowering the WACC.

    Practice Next
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