As the Debt to Equity Ratio Decreases When Debt Is

question 17

Multiple Choice

As the debt to equity ratio decreases when debt is not risk free:

• A)debt holders demand a higher expected return.
• B)debt holders demand a lower expected return.
• C)the expected return on equity increases.
• D)the expected return on assets increases.

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Definitions:

Short Run

A period in economics where at least one input is fixed, meaning that firms can adjust production levels but not capacity.

Long-Run Average-Total-Cost Curve

A curve that shows the lowest cost at which a firm is able to produce a given level of output in the long run, when all inputs can be varied.

Workers

Individuals engaged in a task or activity, especially in the context of employment, to earn wages or salary.

Marginal Cost

The excess cost that arises from the production of an extra unit of a product or service.