Which of the Following Does Not Correctly Describe Influences on the Level

question 36

Multiple Choice

Which of the following does not correctly describe influences on the level of gearing?

• A) The risk of financial distress causes firms to moderate their gearing levels.
• B) In Modigliani and Miller's world with corporate tax, the optimal gearing is the highest possible.
• C) Reinvestment risk is diminished by high gearing.
• D) Managers generally have a preference for high gearing levels.

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Definitions:

External Environment

Factors, forces, situations, and events outside the organization that affect its performance and strategies.

Top Executives

Senior-level managers or leaders in an organization responsible for making overarching decisions and setting strategic directions.

Threats

External or internal factors that pose a potential danger or negative impact on an individual or organization.

Utilitarianism

A teleological theory (also called consequentialism) that emphasizes consequences of actions, weighing the greatest good for the greatest number of people.