An Implicit Cost of Increasing the Proportion of Debt in a Firm's

question 76

Multiple Choice

An implicit cost of increasing the proportion of debt in a firm's capital structure is that:

• A)The firm's asset beta will increase
• B)Equity holders will demand a higher rate of return
• C)The tax shield will not apply to the added debt
• D)The equity-to-value ratio will decrease

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Definitions:

Occupations

Various kinds of jobs or professions individuals engage in to earn a living.

Legal Minimum Wage

The lowest hourly, daily, or monthly remuneration that employers are legally allowed to compensate workers.

Equilibrium Rate

The balance point in financial markets or for specific financial instruments, where supply meets demand.

Marginal Workers

Individuals who are employed in a job that does not fully utilize their skills or capabilities, often due to economic fluctuations or lack of available positions.