What Would a Firm's Debt Ratio Be If It Financed

question 51

Multiple Choice

What would a firm's debt ratio be if it financed one quarter of its assets with debt and three quarters with owner's equity?

• A) 75%
• B) 50%
• C) 33%
• D) 25%

Comprehend how tax deductions for corporate interest affect financial leverage and firm value.

Recognize the relationship between financial leverage, operating leverage, and business performance.

Identify the factors affecting capital structure decisions and the optimal use of leverage.

Understand the effect of leverage on a firm's break-even point and operational fragility.

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Definitions:

Marginal Utility

The extra pleasure or advantage (utility) a person receives from using an additional unit of a product or service.

Marginal Utility

The additional satisfaction or benefit received from consuming one more unit of a good or service.

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The practice of paying a fee to borrow a film for a limited period, traditionally through physical stores, or digitally via online platforms.

Choice Set

The collection of all possible options available to a consumer when making a decision.