Lenders Prefer to Lend to Firms with High Net Worth

question 36

Multiple Choice

Lenders prefer to lend to firms with high net worth because

• A)such firms are usually willing to pay higher interest rates.
• B)the owners of such firms have more to lose if the firm defaults on a loan.
• C)the government requires most bank loans to be made to such firms.
• D)such firms usually are unable to raise funds directly through financial markets.

---

Definitions:

Total Revenue

The overall amount of money generated by a business from its sales of goods or services, calculated by multiplying the price per unit by the number of units sold.

Variable Costs

Costs that change in proportion to the level of output or activity.

Fixed Costs

Costs that remain constant regardless of the amount of goods produced or sold, including expenses like lease payments, wages, and debt repayments.

Total Fixed Costs

The sum of all costs required to produce any amount of a product that does not change with the level of production.