c为啥不是cost of debt

问题如下：

Based on the Modigliani–Miller propositions, if a company increases its debt-to-equity ratio, which cost is likely to increase the most?

选项：

A.

Cost of equity

B.

Weighted average cost of capital (WACC)

C.

Cost of debt

解释：

A is correct because, according to the Modigliani–Miller Proposition II without taxes, increasing financial leverage through higher debt raises the cost of equity. This is because equity investors demand higher returns to compensate for the increased risk associated with higher leverage​​.

B is incorrect as the Modigliani–Miller Proposition I without taxes suggests that changes in capital structure, including variations in the debt-to-equity ratio, do not affect the firm's WACC in an environment without taxes. The WACC remains constant because the increase in cheaper debt is perfectly offset by the increased cost of equity​​.

C is incorrect because the cost of debt itself does not necessarily increase just by changing the debt-to-equity ratio according to the Modigliani–Miller framework. Instead, the cost of equity is what increases due to the heightened financial risk perceived by equity investors​​.