Explanation:

• Option A (WACC): Incorrect. According to the Modigliani-Miller propositions, an increase in the debt-to-equity ratio either has no effect on the WACC (Proposition I) or decreases the WACC (Proposition II). The weighted average cost of capital remains constant as the capital structure changes.

• Option B (Cost of debt): Incorrect. Under the assumptions of Modigliani-Miller Proposition I (without taxes), the cost of debt remains unaffected by changes in the debt-to-equity ratio. Even with taxes, the cost of equity increases more than the cost of debt when the debt-to-equity ratio rises.

• Option C (Cost of equity): Correct. As the debt-to-equity ratio increases, the company's financial risk rises, leading to a higher cost of equity. Modigliani-Miller Proposition II states that the increase in the cost of equity must exactly offset the greater use of lower-cost debt, ensuring the WACC remains unchanged.