Heavy Use of Long-Term Debt May Be Beneficial in an Inflationary

question 48

Multiple Choice

Heavy use of long-term debt may be beneficial in an inflationary economy because

• A) the debt may be repaid in more "expensive" dollars.
• B) nominal interest rates exceed real interest rates.
• C) inflation is associated with the peak of a business cycle.
• D) the debt may be repaid in "cheaper" dollars.

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Definitions:

Contribution Margin Ratio

A financial metric indicating the percentage of each sales dollar that contributes to covering fixed costs and generating profit.

Common Fixed Costs

Costs that do not change in total regardless of changes in the level of activity or volume of output and are shared among multiple products or departments.

Accounting Records

Documents and books that systematically record all financial transactions of an entity, providing a foundation for financial statements and tax returns.

Cost-Plus Transfer

Cost-plus transfer refers to a pricing method where the selling price of a product is determined by adding a fixed profit margin to the total cost of production or procurement.