As the Debt Ratio Increases

question 104

Multiple Choice

As the debt ratio increases,
1. fewer assets are debt financed
2. more assets are debt financed
3. the ratio of debt to equity increases
4. the ratio of debt to equity decreases

• A)1 and 3
• B)1 and 4
• C)2 and 3
• D)2 and 4

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Definitions:

Cash Flows

The total amount of money being transferred into and out of a business, particularly in terms of operational activities.

Relative Risk

The level of uncertainty or volatility of an investment in comparison to another investment or to a market benchmark.

Discount Rate

The interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve's discount window; also used in discounted cash flow (DCF) analysis to determine present value.

NPV

A strategy employed in capital budgeting, Net Present Value is instrumental in determining the financial viability of an investment or project.