David Is Trying to Decide Whether to Add Capital Through

question 138

Multiple Choice

David is trying to decide whether to add capital through investing more of his own money or through borrowing money from the bank.To help him decide,you remind him that ss long as his firm's rate of return on its assets is greater than the cost of the debt,his rate of return on equity will _____ as the firm uses more debt.

• A)decrease
• B)increase
• C)remain the same
• D)fluctuate

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Definitions:

Manufacturing Overhead

Indirect factory-related costs that are incurred when a product is manufactured, including costs such as utilities, maintenance, and salaried staff.

Direct Materials

Materials that can be directly linked to the production of a product.

Indirect Labor

Labor costs associated with employees who do not work directly on the production of goods or services but support the production environment, such as maintenance staff and supervisors.

Decision-Making

The process of selecting the best course of action from multiple alternatives to achieve a desired goal or solve a problem.