The Use of Debt in the Firm's Capital Structure Will

question 30

Multiple Choice

The use of debt in the firm's capital structure will increase ROE if the firm:

• A) has more debt than equity.
• B) pays less in taxes than in interest.
• C) earns a higher return than the rate paid on debt.
• D) has a times interest earned greater than 1.0.

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Definitions:

Judicial Review

The power of courts to assess the legality of actions or decisions made by the government or other public bodies.

Legislative Action

Legislative action includes the processes and activities through which laws are proposed, considered, modified, and ultimately passed or rejected by a legislative body.

Executive Action

Refers to measures or decisions taken by the executive branch of government, often by a president, governor, or other executive authority.

Strict Scrutiny

A form of judicial review that courts use to determine the constitutionality of certain laws, requiring the law to serve a compelling state interest by the least restrictive means.