2. Because debt has a prior claim on the firm’s cash flows, it is less risky than equity and consequently has a lower re

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answerhappygod
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2. Because debt has a prior claim on the firm’s cash flows, it is less risky than equity and consequently has a lower re

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2. Because debt has a prior claim on the firm’s cash flows, it is less risky than equity and consequently has a lower required return (cost). Therefore, even in a world without taxes adding lower cost debt to the capital structure would lower the weighted average cost of capital. Do you agree or disagree with this statement, and why?
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