A Less-Established Company, or a Company with a High Debt

question 153

Multiple Choice

A less-established company, or a company with a high debt to equity ratio, would be considered a riskier investment to the lender. Which of the following principles attests to this axiom?

• A) Direct relationship principle
• B) Compensating balance concept
• C) Risk/return trade-off
• D) Cost-benefit analysis

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Definitions:

New Deal

A series of programs, public work projects, financial reforms, and regulations enacted by President Franklin D. Roosevelt in the United States during the 1930s.

Business Environment

The combination of all external and internal factors that influence a business's operating situation, including economic, legal, technological, and political circumstances.

Economic Recovery

The period in which an economy rebounds from a recession or downturn, generally marked by an increase in GDP, employment, and consumer spending.

Smoot-Hawley

Refers to the Smoot-Hawley Tariff Act of 1930, a U.S. law that raised import tariffs on thousands of goods, contributing to the severity of the Great Depression.