The Present Value of the Costs of Financial Distress Increases

question 15

Multiple Choice

The present value of the costs of financial distress increases as the debt ratio increases because the:

• A) expected return on assets increases.
• B) present value of the interest tax shield is greater.
• C) equity tax shield is depleted.
• D) probability of default is greater.

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Definitions:

Menu Costs

Menu costs are the costs to firms of changing their prices, including the physical costs of changing price tags and the intangible costs of updating pricing information.

Advertising New Prices

The practice of notifying consumers about changes in the prices of goods or services through various forms of media.

Collision Detection

The computational procedure to check and identify when two or more entities in a digital simulation or physical environment occupy the same space at the same time, to prevent or resolve conflicts.

Network Access Control

The method of accessing the network media (cable) to ensure that data are transmitted in an organized manner in order to reduce the possibilities of data corruption.