Suppose Two Firms Have the Same Amount of Assets, Pay

question 48

True/False

Suppose two firms have the same amount of assets, pay the same interest rate on their debt, have the same basic earning power (BEP), and have the same tax rate. However, one firm has a higher debt ratio. If BEP is greater than the interest rate on debt, the firm with the higher debt ratio will also have a higher rate of return on common equity.

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Definitions:

Punishment

A consequence that decreases the likelihood of a behavior being repeated.

Breadwinner

Traditionally refers to the primary income earner in a household, responsible for supporting the family financially.

Attachment Style

Patterns of relating to others formed in childhood, based on the nature of interactions with caregivers, affecting relationships throughout one's life.

Bowlby and Ainsworth

Key figures in attachment theory, with John Bowlby proposing the concept of attachment in child development, and Mary Ainsworth expanding on it through her research on the mother-child bond.