The Standard Long-Run Model Assumes That

question 24

Multiple Choice

The standard long-run model assumes that:

• A) technology improves at an increasing rate over time.
• B) technological advance is impossible.
• C) technology is fixed.
• D) costs of production are fixed.

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Definitions:

Perpetual EBIT

Illustrates a theoretical concept where a company's earnings before interest and taxes (EBIT) are assumed to continue indefinitely.

Unlevered Cost of Capital

The cost of capital for a company that has no debt, representing the risk of a firm's assets before the impact of financial leverage.

Financial Leverage

Use of borrowed funds to increase the potential return of an investment, also indicating how much a company relies on debt to finance its assets.

Static Theory of Capital Structure

A financial hypothesis that suggests there is an optimal capital structure for a company where the cost of capital is minimized, and the value of the firm is maximized.