How does raising additional debt impact a DCF analysis?

Raising additional debt can indeed change the implied valuation based on the capital structure, which is why this option is correct. In a discounted cash flow (DCF) analysis, the capital structure—specifically the mix of debt and equity—affects the company's overall cost of capital. When a company takes on more debt, it can alter its weighted average cost of capital (WACC).

Generally, debt is less expensive than equity due to the tax deductibility of interest payments, which can make leveraging more appealing. However, higher levels of debt increase financial risk and may lead to a higher beta for the equity component due to the increased volatility associated with leveraged firms. Thus, raising additional debt can result in a different valuation outcome based on these dynamics.

This option recognizes that the implications of leveraging through debt not only affect cash flows but also revise the risk profile of the company, impacting how investors value it in light of the perceived changes in risk. Hence, the capital structure directly influences the estimated value of a company, forming the basis for adjustments made in financial analysis.

Other choices might suggest that raising debt has fixed effects—like always decreasing value or having no effect—which fails to account for the nuanced relationships between debt levels, risk, and valuation. Additionally