Changing the Capital Structure by Adding Debt Will Not

question 81

Multiple Choice

Changing the capital structure by adding debt will not:

• A)Increase the return that shareholders require
• B)Leave the WACC unaffected
• C)Decrease debt holder risk
• D)Increase the cost of debt

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Definitions:

Contribution Margin

The amount of revenue remaining after deducting variable costs, used to cover fixed costs and generate profit.

Variable Costing Income Statement

A financial statement that includes only variable production costs (direct materials, direct labor, and variable manufacturing overhead) in the cost of goods sold and separates fixed overhead costs as period costs.

Electricity

The cost associated with the consumption of electrical power used in business operations or manufacturing processes.

Absorption Costing

An accounting method where all manufacturing costs, both fixed and variable, are allocated to produced units, making it different from variable or direct costing methods.