With Risky Debt and MM II, the Expected Return on Assets

question 58

Multiple Choice

With risky debt and MM II, the expected return on assets _____ as the debt-equity ratio _____.

• A) increases; increases
• B) decreases; increases
• C) increases; decreases
• D)remains constant; increases

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Definitions:

Useful Life

The estimated duration a fixed asset is expected to be economically usable, with normal repairs and maintenance, for its intended purpose.

Cash Payback Period

The duration it takes for an investment to generate an amount of cash equal to the initial investment cost.

Salvage Value

The estimated residual value of an asset at the end of its useful life, representing what it could be sold for or its scrap value.

Straight-Line

A depreciation method that equally spreads the cost of an asset over its useful life.