Firms That Maintain a Constant Ratio of Debt-Equity Over a Variable

question 77

Multiple Choice

Firms that maintain a constant ratio of debt-equity over a variable business cycle may find that:

• A)Debt has grown too large, too fast
• B)It is more difficult to maintain a stable dividend
• C)Debt covenants always accommodate more debt, but often prevent debt prepayment
• D)Equity is always less expensive to obtain than debt

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Definitions:

Self-Reference Effect

The tendency for individuals to better remember information when it is related to oneself.

Adjectives

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A type of information processing that requires conscious effort and attention, as opposed to automatic processing which requires little to no conscious effort.

Long-Term Retention

The ability to maintain and recall information over extended periods of time, beyond short-term memory.