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

question 92

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 equity-to-value ratio will decrease.

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Definitions:

Interim Financial Statements

Financial reports that cover a period shorter than a fiscal year, usually quarterly or semi-annually, providing insights into a company's financial status throughout the year.

Work Sheet

An internal document used by accountants to organize and adjust financial information before generating official financial statements.

Net Income

The profit amount left for a company following the subtraction of all expenditures and tax payments from its gross revenue.

Income Statement Credit Column

A section on the income statement where credits or revenues are recorded.