If a Firm's Expected Return on Equity Equals Its Expected

question 21

Multiple Choice

If a firm's expected return on equity equals its expected return on assets, then the:

• A)Expected return on debt exceeds the expected return on assets
• B)Likelihood of financial distress is high
• C)Firm has too much debt
• D)Firm has no debt in its capital structure

---

Definitions:

Demand Coefficient

A measure that indicates the sensitivity or responsiveness of the quantity demanded of a good or service to changes in its price.

Normal Good

A good for which demand increases as the income of individuals or the economy grows, and decreases when income falls.

Income Responsiveness

The degree to which demand for a product or service changes in response to changes in consumer income.

Income Elasticity of Demand

A metric that gauges the sensitivity of demand for a product to shifts in the income of consumers.