According to the Principle of Comparative Advantage, If the United

question 56

Multiple Choice

According to the principle of comparative advantage, if the United States trades with Mexico, most likely,

• A) the United States will benefit and Mexico will lose.
• B) neither of the countries will benefit.
• C) both countries will benefit.
• D) the United States will lose and Mexico will benefit.

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Definitions:

Tax Rate

The part of an individual's or corporation's earnings that is subject to taxation.

Debt-Equity Ratio

The ratio indicating a corporation's reliance on debt financing, found by dividing its total debts by the equity held by its shareholders.

After-Tax Cost of Debt

The net cost of debt after accounting for the effects of taxes, reflecting the actual cost to a company.

Cost of Equity

The theoretical compensation paid by a company to its equity investors, or shareholders, for the risk involved in investing their capital.