By Adding Leverage, the Returns on the Firm Are Split

question 48

Multiple Choice

By adding leverage, the returns on the firm are split between debt holders and equity holders, but equity holder risk increases because

• A) interest payments can be rolled over.
• B) dividends are paid first.
• C) interest payments have first priority.
• D) debt and equity have equal priority.

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Definitions:

Ethical Behaviour

Conduct based on recognized moral principles or values, emphasizing honesty, fairness, and integrity in personal and professional realms.

Greatest Good

A principle aiming at the maximum positive outcome or benefit for the largest number of people.

Economic Recession

A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

Workforce

The collective group of individuals engaged in or available for work, either in a specific region or sector or within a particular organization.