Everything Else Equal, If a Firm Shifts Its Capital Structure

question 91

Multiple Choice

Everything else equal, if a firm shifts its capital structure to include more debt than before the shift, then the firm's business risk should

• A) increase because the degree of financial leverage increases.
• B) decrease because the degree of operating leverage decreases.
• C) not change because capital structure decisions should affect the firm's financial risk, not its business risk.
• D) not change because, although additional ordinary shares will increase financial risk, the business risk should decrease by the same amount.

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Definitions:

Fine Motor

Refers to the skills involving the coordination of small muscles in movements, particularly involving the hands and fingers, such as holding a pencil or tying shoelaces.

Gross Motor

Skills that involve the large muscles of the body, such as those used for walking, running, lifting, and other major physical activities.

Symbolic Thinking

The ability to use symbols, signs, or objects to represent something else, a critical aspect of language development and abstract thought.

Preoperational Stage

A development stage in early childhood according to Piaget, characterized by symbolic thinking and difficulty understanding other perspectives.