If a Company Increases Its Debt Ratio, but Leaves Its

question 100

Multiple Choice

If a company increases its debt ratio, but leaves its operating income (EBIT) and total assets unchanged, which of the following is most likely to occur:

• A) The company's tax liability will fall.
• B) The company's net income will rise.
• C) The company's basic earning power will fall.
• D) Answers a and b are correct.
• E) None of the answers above is correct.

Recognize various types of investments and their characteristics (e.g., safety, income, growth potential).

Grasp the concept of liquidity and its importance in investment decisions.

Identify strategies for asset allocation and its role in risk reduction.

Understand the concept of equity capital and its acquisition.

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