Which of the Following Statements Is Correct

question 17

Multiple Choice

Which of the following statements is correct?

• A) A firm's business risk is solely determined by the financial characteristics of its industry.
• B) The factors which affect a firm's business risk are determined partly by industry characteristics and partly by economic conditions.Unfortunately,these and other factors which affect a firm's business risk are not subject to any degree of managerial control.
• C) One of the benefits to a firm of being at or near its target capital structure is that financial flexibility becomes much less important.
• D) The firm's financial risk may have both market risk and diversifiable risk components.
• E) The above statements are all false.

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Definitions:

Discount Rate

The interest rate charged by central banks for short-term loans to commercial banks, influencing monetary policy and economy liquidity.

Required Reserve Ratio

The fraction of deposits that a bank is legally required to hold as reserves, either in its own vaults or with a central bank.

Government Spending

Expenditures made by the government for its operations, provision of public services, or interventions in the economy.

U.S. Government Securities

Fixed-income investments backed by the full faith and credit of the United States government, including Treasury bills, notes, and bonds.