If a Firm's Excess Cash Holdings Are Greater Than Its

question 80

Multiple Choice

If a firm's excess cash holdings are greater than its debt,using net debt as the measure of leverage will result in:

• A)its unlevered beta and cost of capital equaling zero.
• B)its unlevered beta and cost of capital being greater than its equity beta and cost of capital.
• C)the risk of the firm's equity being increased by its cash holdings in excess of its operating needs.
• D)the risk of the firm's debt being increased by its cash holdings in excess of its operating needs.

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Definitions:

Diagram

A simplified drawing showing the appearance, structure, or workings of something, often used in education and technical fields.

Efficiency Loss

A reduction in economic efficiency due to disparities between marginal social benefits and marginal social costs, often caused by market failures or policy interventions.

Underproduction

The condition of producing less than the optimal or expected amount of goods and services, leading to inefficient utilization of resources.

Deadweight Loss

The loss of economic efficiency that occurs when the equilibrium for a good or a service is not achieved or is unattainable.