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11-03-2024
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Aztec Ltd. is considering increasing its amount of debt and buying back equity. Its current debt-to-equity ratio is 0. 8, but it has decided to increase this ratio to 1. 25 to be more in line with the leverage ratios of peers in its industry. The company considers 1. 25 to be its optimal capital structure. Which of the following best describes the impact of this change in leverage with respect to Aztec?

A. WACC will decrease and the cost of equity will increase.
B. WACC and the cost of equity will increase.
C. WACC will increase and the cost of equity will decrease.
D. WACC will decrease and the cost of equity will decrease.

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