As the Debt-Equity Ratio Decreases When Debt Is Not Risk

question 54

Multiple Choice

As the debt-equity ratio decreases when debt is not risk free:

• A) debtholders require a higher expected return.
• B) debtholders require a lower expected return.
• C) the expected return on equity increases.
• D) the expected return on assets increases.

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Definitions:

Commitment

The state or quality of being dedicated to a cause, activity, or job; wholehearted dedication.

Influence Others

The ability to affect or change how other people think, feel, or act through persuasion, leadership, or example.

Organization's Shares

Units of ownership in a company that represent a claim on the company's assets and earnings.

Credibility

The quality of being trusted and believed in, often based on a history of honesty, reliability, and competence.