Changing the Capital Structure by Adding Debt Will

question 55

Multiple Choice

Changing the capital structure by adding debt will:

• A) reduce the return that shareholders require.
• B) reduce default risk.
• C) increase debtholder risk.
• D) reduce the cost of debt.

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Definitions:

Subsidy Program

A government initiative designed to support businesses or individuals through financial assistance or tax benefits.

Downward Sloping

Describes a line or curve on a graph that shows a decrease in one variable as another variable increases, often used in economics to describe demand curves.

Demand Curves

Graphical representations showing the relationship between the quantity of goods consumers are willing and able to purchase at various prices, typically downward sloping from left to right.

Own Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, holding all else constant.