Which of the Following Is Not a Cost to the Firm

question 49

Multiple Choice

Which of the following is not a cost to the firm of increasing debt financing?

• A) Investors will demand a higher interest rate on debt.
• B) The risk to common stockholders will increase.
• C) Stockholders will demand a higher return.
• D) The cost of common equity will decrease.

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Definitions:

Relevant Activity Base

A factor that directly influences the costs incurred during a business activity, used for allocating costs in activity-based costing.

Decision-making Needs

The requirement for relevant, timely, and accurate information to make informed choices in business operations and strategies.

Variable Costs

Expenses that fluctuate in proportion to activity levels within a business.

Per-unit Basis

A calculation or measurement that is made for each individual unit.