An Implicit Cost of Increasing the Proportion of Debt in a Firm's

question 76

Multiple Choice

An implicit cost of increasing the proportion of debt in a firm's capital structure is that:

• A) the firm's asset beta will increase.
• B) shareholders will demand a higher rate of return.
• C) the tax shield will not apply to the added debt.
• D) the cost of equity will decrease.

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Definitions:

Supply Shock

An unexpected event that suddenly changes the supply of a product or commodity, leading to swift price changes and potentially impacting an economy.

Short-Run Aggregate Supply Curve

A curve showing the relationship between the total supply of goods and services and the price level for output in the short run.

Energy Prices

The cost of consumable energy sources, such as oil, natural gas, coal, and electricity, which can fluctuate based on market demand, supply conditions, geopolitical events, and other factors.

Productive Resource

A Productive Resource is any input used in the production of goods or services, including labor, capital, and natural resources.