Which of the Following Is True When a Firm Has

question 22

Multiple Choice

Which of the following is true when a firm has level coupon debt outstanding and growth opportunities?

• A) The firm should be 100% debt financed because the greater the debt the greater tax shield.
• B) 100% debt financing is suboptimal because increased firm value does not increase the current interest needed to shield income today.
• C) Firm value will only increase if the debt level is increased to 100%.
• D) The high growth firm will have high debt ratios as they need greater financing.

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Definitions:

Independent Variables

Variables in an experiment or study that are manipulated or categorized to observe their effect on dependent variables.

Coefficient of Multiple Correlation

A measure used in multiple regression analyses to assess the strength of the relationship between multiple independent variables and a single dependent variable.

Partial-Regression Coefficient

A measure in multiple regression that represents the change in the dependent variable for a one-unit change in a specific explanatory variable, holding all other explanatory variables constant.

Regression Analysis

A statistical method for modeling the relationship between a dependent variable and one or more independent variables, used to predict outcomes and trends.