Question

used “risk units” to illustrate what about financial leverage? a. That debt financing creates a tax shield and therefore lowers firm risk b. That debt is risk free c. That for firms with leverage, the higher the EBIT, the higher is firm risk d. That the risk of the firm’s assets cannot be changed by shifts in financial leverage e. That firm value is maximized where the cost of capital is minimized

Answer 1

That firm value is maximized where the cost of capital is minimized

the above is answer..

because lower cost of capital results in lower discount rate, thus higher value of firm