What Is the Proportion of Debt Financing for a Firm

question 99

Multiple Choice

What is the proportion of debt financing for a firm that expects a 35% return on equity, a 20% return on assets, and a 15% return on debt? Ignore taxes.

• A)15%
• B)25%
• C)75%
• D)80%

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Definitions:

Material Participation Activities

Activities in which taxpayers are involved on a regular, continuous, and substantial basis in business operations.

Significant Participation Activities

Activities involving substantial time participation, typically more than 100 hours annually, that can impact taxation, especially in passive income situations.

Adjusted Gross Income

An individual's total gross income minus specific deductions, used to determine taxable income and eligibility for certain tax benefits.

At-Risk Amount

The maximum amount of money an investor stands to lose in an investment, which limits loss deduction claims for tax purposes.