An Implicit Cost of Increasing the Proportion of Debt in a Firm's

question 76

Multiple Choice

An implicit cost of increasing the proportion of debt in a firm's capital structure is that:

• A) the firm's asset beta will increase.
• B) shareholders will demand a higher rate of return.
• C) the tax shield will not apply to the added debt.
• D) the cost of equity will decrease.

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Definitions:

Net Income

The total profit of a company after subtracting all expenses, taxes, and costs from its total revenue.

Inventory Method

The approach or system used by a company to track and manage inventory, such as FIFO (First-In, First-Out) or LIFO (Last-In, First-Out).

Notes

A financial document representing an agreement for a borrower to pay back a lender according to specified terms, often detailing the interest rate, repayment schedule, and maturity date.