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:

Investing Activities

Part of the cash flow statement that shows the cash spent on and generated from investment-related activities such as purchases and sales of physical assets or securities.

Cash Inflows

Funds being received by a business from any source, including sales, investment income, or financing activities.

Cash Outflows

Money leaving a business through expenses, investments, and other financial activities, reducing the cash balance.

Operating Activities

Business activities directly related to the production and delivery of goods and services, which are reflected in the cash flow statement.