Which One of the Following Is True

question 11

Multiple Choice

Which one of the following is true?

• A)A firm with low anticipated profits will likely take on a high level of debt.
• B)Investors will generally view an increase in leverage as a positive sign of the firm's value.
• C)Rational investors are likely to infer a higher firm value if a firm is all-equity financed.
• D)Rational firms raise debt levels when profits are expected to decline.
• E)High-growth firms with future positive net present value projects tend to have high levels of debt.

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Definitions:

Dominant Strategy

A strategy that yields the best payoff for a player, regardless of what strategies other players use.

Wealth

The total value of all the economic resources owned by an individual or entity.

Contribute

To give something, such as time, money, or resources, towards a common goal or cause, often for the benefit of a larger group or project.

Benefit

A term referring to the positive outcome or satisfaction received from consuming a good or service or from a particular economic activity.