As the Amount of a Debt a Firm Uses Increases

question 55

Multiple Choice

As the amount of a debt a firm uses increases,

• A)the expected return on debt increases, but its promised return remains the same.
• B)the cost of debt increases, but the cost of equity remains unchanged.
• C)the costs of both debt and equity increase, but the weighted average cost of capital for the firm remains unchanged.
• D)the costs of both debt and equity increase, which will cause the weighted average cost of capital for the firm to increase.

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Definitions:

First-Level Outcomes

Immediate results or effects of an action or intervention that can lead to longer-term impacts or second-level outcomes, often used in evaluation frameworks.

Expectancy Theory

A motivational theory suggesting that individuals are motivated to act in certain ways based on their expectations that their actions will lead to desired outcomes.

Valence

The expected value of work outcomes; the extent to which they are attractive or unattractive.

Task Complexity

The degree to which a task is complicated or challenging, often measured by the number of components, the diversity of skills required, and the level of uncertainty involved.