Holding All Other Things Equal, as the Relative Amount of Debt

question 29

Multiple Choice

Holding all other things equal, as the relative amount of debt in the capital structure of the firm increases, the cost of equity capital will ____.

• A) increase
• B) decrease
• C) remain unchanged; there is no relationship between the two
• D) initially rise rapidly, then increase slowly beyond some point

---

Definitions:

Reorganization

The process by which a company changes its structure, strategies, or operations, often to increase efficiency or to adapt to new markets.

Administrative Expenses

Expenses related to the general operation of a business, such as salaries of non-sales personnel, rent, utilities, and office supplies.

Accounts Receivable

Money owed to a company by its customers for products or services that have been delivered or used but not yet paid for.

Bankruptcy Reform Act

Refers to legislation enacted to reform the bankruptcy law, such as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which introduced significant changes to filing requirements and procedures.