A Decrease of Debt in the Capital Structure Tends to Reduce

question 76

Multiple Choice

A decrease of debt in the capital structure tends to reduce a firm's EPS when the firm:

• A) faces high interest rates.
• B) faces strong growth in business conditions.
• C) pays taxes.
• D) does not reinvest its earnings.

---

Definitions:

Expected Price Level

Expected price level refers to the anticipated average cost of goods and services in the future, based on current trends and economic indicators.

Recessionary Gap

A condition in macroeconomics when an economy's real GDP is lower than its potential GDP, leading to unemployment and underutilized resources.

Increase Production

A situation where a company or country grows its capability to produce goods or services, often in response to higher demand or improved efficiency.

Marginal Costs

The additional cost incurred from producing one more unit of a good or service.