Suppose the Value of Your Home Increases from $100,000 to $125,000

question 127

Multiple Choice

Suppose the value of your home increases from $100,000 to $125,000. If you continue to live in your home, the increase in its value:

• A)adds nothing to GDP.
• B)increases GDP by $25,000.
• C)increases GDP by $100,000.
• D)increases GDP by $125,000.

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Definitions:

Operating Income

Operating Income is the amount of profit realized from a business's operations, after deducting operating expenses such as wages, depreciation, and cost of goods sold.

Optimal Capital Structure

The optimal combination of equity and debt financing that reduces the firm's capital costs to the minimum while maximizing its value.

Maximizes Value

Maximizes Value refers to the financial management principle where decisions are made to increase the worth of a company or asset to its shareholders or owners.

Financial Distress Costs

Expenses incurred by a company when it is struggling to meet its financial obligations, which may include bankruptcy costs, restructuring costs, and inefficiencies.