Lowering the Debt-Equity Ratio of the Firm Can Change the Firm's

question 39

Multiple Choice

Lowering the debt-equity ratio of the firm can change the firm's
I.financial leverage;
II.cost of equity;
III.cost of debt;
IV.effective tax rate

• A)II and III only
• B)I only
• C)I, II, and III only
• D)I, II, III, and IV

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Definitions:

Profitability

The ability of a company to generate earnings relative to its revenue, assets, or equity over a specific period, indicating its financial health.

Vertical Analysis

A financial method that expresses each item within a financial statement in percentage terms of a base figure for the same time period, facilitating comparison.

Base Amount

A reference value or starting point used in financial calculations or comparisons.

Vertical Analysis

A financial analysis method that lists each line item as a percentage of a base figure within the same financial statement.