If a Firm That's Doing Very Well Pays the Same

question 144

Multiple Choice

If a firm that's doing very well pays the same return to equity and debt shareholders, and needs to raise more money, it may be wise to use debt because:

• A)interest is tax deductible resulting in a lower cost to the firm.
• B)Equity is the less desirable source of capital.
• C)borrowing is always less of an effort than raising additional equity capital.
• D)All of the above

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Definitions:

Null Hypothesis

A statement used in hypothesis testing that indicates no significant difference or effect.

P-value

The probability of observing a statistic at least as extreme as the one observed, given that the null hypothesis is true.

Level of Significance

A threshold in hypothesis testing that determines the probability of rejecting a true null hypothesis, often denoted by alpha.

Mean Square

A statistical measure calculated by dividing the sum of squares by the degrees of freedom, often used in variance analysis.