Q. Which of the following statement is true according to traditional approach of capital structure?
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(A)
Cost of capital increases with the use of debt after a certain amount of debt and later falls
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(B)
Cost of equity and debt more or less remains constant with the use of debt up to a certain amount of debt
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(C)
Cost of declines and cost of debt remains constant with increase in debt.
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(D)
Cost of equity declines and cost of debt increases with increase in debt
✅ Correct Answer: (B)
Cost of equity and debt more or less remains constant with the use of debt up to a certain amount of debt