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:

Subsidizing Consumers

Directing government funds to reduce the price paid by consumers for goods or services, aiming to encourage consumption or support specific sectors.

Efficiency Loss

Reductions in combined consumer and producer surplus caused by an underallocation or overallocation of resources to the production of a good or service. Also called deadweight loss.

Deadweight Loss

A loss of economic efficiency that occurs when the equilibrium for a good or service is not achieved or is not achievable.