Suppose You Plotted a Curve Which Showed a Firm U's

question 61

True/False

Suppose you plotted a curve which showed a Firm U's WACC on the vertical axis and its debt ratio on the horizontal axis.Then you plotted a similar curve for Firm V.The curve for firm U resembled a shallow "U," while that for Firm V resembled a sharp "V." Both firms have debt ratios that cause their WACCs to be minimized.Other things held constant,it would be easier for Firm V than for Firm U to maintain a steady dividend in the face of varying investment opportunities and earnings from year to year.

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Definitions:

Midpoint Formula

A mathematical equation used to find the exact center point between two points on a line segment by averaging the x-coordinates and y-coordinates.

Price Elasticity

The measure of how much the quantity demanded of a good responds to a change in the price of that good.

Midpoint Formula

A method for calculating the elasticity of demand or supply by using the average percentage change in both quantity and price.

Price Elasticity

This measures how sensitive the quantity demanded of a good or service is to a change in its price.