QUESTION 5 Which of the following is true: If the manager increases the firm\'s

ID: 2795090 • Letter: Q

Question

QUESTION 5

Which of the following is true: If the manager increases the firm's D/E ratio:

A. The firm's stock will have a higher expected return and less risk.

B. The firm's stock will have a lower expected return and more risk.

C. The firm's stock will have a higher expected return and more risk.

D. The firm's stock will have a lower expected return and less risk.

A. The firm's stock will have a higher expected return and less risk.

B. The firm's stock will have a lower expected return and more risk.

C. The firm's stock will have a higher expected return and more risk.

D. The firm's stock will have a lower expected return and less risk.

Dear student...Thank you for using chegg...correct answer is C. The firm's stock will have a higher expected return and more risk.

Since increase in debt equity ratio would mean more debt in the firm which would increase risk and would result in higher expected return

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