An Implicit Cost of Increasing the Proportion of Debt in a Firm's

question 27

Multiple Choice

An implicit cost of increasing the proportion of debt in a firm's capital structure is that:

• A)the firm's asset beta will increase.
• B)equity holders will demand a higher rate of return.
• C)the tax shield will not apply to the added debt.
• D)the equity-to-value ratio will decrease.

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Definitions:

Containment Policy

A United States foreign policy during the Cold War aimed at preventing the spread of communism by providing economic and military support to countries threatened by communist insurgency.

Truman Doctrine

A policy set forth by U.S. President Harry S. Truman in 1947, supporting countries that rejected communism, marking the start of the Cold War era.

American Foreign Policy

The strategic approach and actions taken by the United States in its relations with other countries, including diplomacy, military actions, and treaties.

Gamal Abdul Nasser

An Egyptian military officer and statesman who served as the second President of Egypt from 1954 until his death in 1970, known for his nationalist policies and his key role in the pan-Arab movement.