Which of the Following Is a Valid Reason for a Firm

question 26

Multiple Choice

Which of the following is a valid reason for a firm not to use as much debt as it can raise?

• A)The use of more debt is expected to result in a lower price/earnings ratio.
• B)The use of more debt is expected to result in an increase in the firm's cost of capital when everything is considered.
• C)More debt will increase the firm's riskiness.
• D)All of the above are valid reasons for a firm to use less debt than might be available.

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Definitions:

Cash Dividends Payable

Cash dividends payable are dividends that a company has declared to distribute to its shareholders but has not yet paid out.

Payment Of Dividends

The distribution of some of a company's earnings to its shareholders as determined by the company's board of directors.

Beginning Of The Year

Refers to the start of a fiscal or calendar year, marking the point in time when businesses commonly review and adjust budgets, plans, and strategies.

Investing Activities

Financial transactions involving the purchase and sale of long-term assets and other investments not included in cash equivalents.