TLCEnterprises Just Revised Its Capital Structure from a Debt-Equity Ratio

question 6

Multiple Choice

T.L.C.Enterprises just revised its capital structure from a debt-equity ratio of 0.30 to a debt-equity ratio of 0.45.The firm's shareholders who prefer the old capital structure should:

• A)sell some shares and hold the sale proceeds in cash.
• B)sell all of their shares and loan out the entire sale proceeds.
• C)do nothing.
• D)sell some shares and loan out the sale proceeds.
• E)borrow funds and purchase more shares.

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Definitions:

Variable Overhead

Costs that vary with the level of production output, such as utilities for manufacturing equipment, which are not fixed.

Standard Cost

An estimated or pre-determined cost of manufacturing a product or performing a service, used for budgeting and performance evaluation.

Variable Manufacturing Overhead

Indirect production costs that fluctuate with the level of production output, such as utilities for the manufacturing plant.

Direct Labor-Hours

The total number of hours worked by employees directly involved in manufacturing goods or providing services.