12. Which of the following statements is not correct?

A. The more the firm hedges its financial exposures, the less equity it requires to support its business.

B. In order to maximize the value, a firm must hedge its financial exposure irrespective of its capital structure.

C. The use of risk management to reduce financial exposures effectively increases a firm's debt capacity.

D. Decisions to hedge financial exposures should be made jointly with the company's capital structure decisions.

Correct answer is Bfficeffice" />

Hedging is not a mandatory, i.e. hedging could help some firms to increase shareholder value, while for other firms, leaving exposures unhedged or selectively hedged while maintaining more equity may be the value-maximizing strategy. Therefore, consideration of capital structure plays a vital role in hedging decisions.