A Firm Has a Debt/equity Ratio of ½

question 77

Multiple Choice

A firm has a debt/equity ratio of ½.The debt pays a 6% rate of interest.The expected rate of return on equity is 12%.What would happen to the expected rate of return if the firm reduced its debt/equity ratio to 1/3?

• A)rate of return would increase to 11.33%
• B)rate of return would increase to 12.50%
• C)rate of return would decrease to 10.60%
• D)rate of return would decrease to 8.33%

---

Definitions:

Carbonic Acid/Bicarbonate System

A major buffer system in the blood, maintaining the body's pH balance by regulating carbon dioxide (CO2) and bicarbonate (HCO3-) levels.

Blood Ph

A measure of the acidity or alkalinity of blood, with a normal range typically between 7.35 and 7.45.

Elevated Fat Metabolism

An increase in the biochemical process by which fats are converted into energy for the body's use.

Insurance Contract

A legally binding agreement between an insurer and the insured, outlining the terms for the insurance coverage.