According to the Traditional approach to capital structure:

Correct answer: B) Using debt sensibly lowers the overall cost of capital up to a point, beyond which Ko rises, so an optimum capital structure exists

Explanation

The Traditional approach takes a middle path between NI and NOI. At moderate leverage, Ke rises only slowly and cheaper debt reduces Ko. Beyond a certain level, both Ke and Kd rise sharply and Ko increases. So there is an optimum capital structure where Ko is lowest. A constant Ko is the NOI and MM (no tax) view.