The Risk of Debt Capital Is Less Than That of Other

question 168

Multiple Choice

The risk of debt capital is less than that of other long-term contributors of capital because

• A) it has far stronger legal pressure against the company to make payment than do preferred and common stockholders.
• B) it has a higher priority of claim against any earnings or assets available for payment.
• C) the tax-deductibility of interest payments lowers the debt cost to the firm substantially.
• D) of all of the above.

Understand the concept of economic profits and how they are calculated.

Comprehend the role of implicit and explicit costs in business decision-making.

Analyze how firms calculate total cost and the impact of various costs on business profitability.

Identify the factors influencing firm’s short-run and long-run operational decisions.

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Definitions:

Continuous

Something that occurs without interruption, in automotive terms, can refer to processes or systems that operate unceasingly.

Active

Refers to something currently in operation or in use.

Nonintrusive

A term describing techniques or methods that do not require physical alteration or penetration of a system or object to assess or interact with it.

Monitor

To observe and check the progress or quality of something over a period, often through the use of instruments or sensors.