debt增加难道不是WACC降低么？

问题如下：

Based on Modigliani and Miller's Proposition II without taxes, which outcome is most likely when a firm increases its use of debt financing?

选项：

A.

The company's overall cost of capital decreases.

B.

The cost of equity remains unchanged.

C.

The cost of equity increases to offset the lower-cost debt.

解释：

A is incorrect because MM Proposition II clarifies that the increase in debt leads to a higher risk of bankruptcy, necessitating a higher return demanded by equity investors. This demand compensates for the increased risk, leaving the WACC unchanged.

B is incorrect because the cost of equity does not remain unchanged; it increases as more debt is introduced into the capital structure. This increase is a direct response to the heightened financial risk from additional leverage.

C is correct because MM Proposition II outlines that any addition of lower-cost debt is perfectly balanced by a rise in equity cost. This balance is essential to maintain the company's WACC at a constant level despite the increased leverage. The necessity for higher returns on equity is a reflection of the augmented risk associated with higher debt levels​​.