Which of the Following Is True of Debt Financing

question 149

Multiple Choice

Which of the following is true of debt financing?

• A) Elected political officials will find debt financing attractive because it allows them to provide voters with visible current benefits while pushing the more visible costs into the future.
• B) Debt financing is unattractive to elected political officials because voters recognize that excessive debt will lead to the future collapse of the economy.
• C) Debt financing is attractive to elected political officials because countries with a higher debt to GDP ratio generally grow more rapidly.
• D) Elected political officials will be reluctant to run budget deficits  because they recognize that taxes will have to be raised in the future to pay the interest on the larger amount of outstanding debt.

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Definitions:

Invested Assets

Assets that are purchased or acquired with the expectation that they will generate income or increase in value over time.

Target Cost

The estimated price for a product or service that is determined by subtracting a desired profit margin from the competitive market price.

Profit Margin

The ratio or percentage of profit to sales, reflecting the efficiency with which a company or business unit generates income relative to its revenue.

Competition-Based Method

A method of price setting based on the price offered by competitors.