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:

Faithfully Representative

A qualitative characteristic of financial information that ensures the data accurately reflects the economic phenomena it represents.

Neutral

An unbiased position or stance that does not favor any side in a conflict or competition.

Verifiable

The quality of information that occurs when independent observers, using the same methods, obtain similar results.

Faithful Representation

Numbers and descriptions match what really existed or happened—they are factual.