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:

Hormonal Secretions

The release of hormones into the bloodstream by glands, key to regulating bodily functions and processes.

Neural Abnormalities

Deviations or irregularities in the structure or function of the nervous system.

Achievement Motive

The internal drive or need for achievement that propels individuals to strive for success, achieve goals, and tackle challenging tasks.

Competence Motive

The drive or desire to be effective in dealing with the environment and achieving proficiency or mastery in skills.