Using Debt and Preferred Stock in the Capital Structure of a Firm

question 21

Multiple Choice

Using debt and preferred stock in the capital structure of a firm will _____.

• A) increase financial risk
• B) decrease business risk
• C) increase the tax payableby the firm.
• D) decrease operating leverage
• E) increase the book value of common stock

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Definitions:

Heuristics

Mental shortcuts or rules of thumb that simplify decision-making processes, often leading to quick but sometimes inaccurate conclusions.

Propositions

Statements or assertions that express a judgment or opinion.

Predicate

The part of a sentence or clause containing a verb that states something about the subject.

Spreading Activation Model

A cognitive theory suggesting ideas in the brain are connected in a network, and thinking about one concept can trigger related concepts.