Which of the Following Is True About Advertising by a Firm

question 74

Multiple Choice

Which of the following is true about advertising by a firm?

• A) It is not always successful in increasing demand for a firm's product.
• B) It attempts to increase demand and to make demand more inelastic.
• C) It may reduce per unit costs of production when economies of scale are experienced.
• D) All of the above.

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Definitions:

Interest Tax Shield

The reduction in taxable income for individuals or corporations achieved by deducting interest payments on borrowed funds.

M&M Proposition II

A theory proposing that the cost of equity increases as a company increases its leverage, due to the riskier equity stream.

Debt-Equity Ratio

A ratio assessing the comparative financing from equity and debt for a company’s assets.

Cost of Equity

The return a company theoretically pays to its equity investors, conceived as a compensation for taking on the risk of investing.