If a Firm Increases the Amount of Debt That It

question 43

Multiple Choice

If a firm increases the amount of debt that it has this could lead to an increase in:

• A)financial risk.
• B)the cost of equity.
• C)both the cost of equity and the financial risk.
• D)None of the above.

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Definitions:

Gross Margin Percentage

A financial metric that represents the gross margin as a percentage of total sales revenue, indicating the efficiency of a company in producing and selling goods.

Price-Earnings Ratio

A valuation metric for stocks, calculated by dividing the market price of a stock by its earnings per share, indicating the dollar amount an investor can expect to invest in a company to receive one dollar of that company’s earnings.

Common Stock

Equity ownership in a corporation, with shareholders entitled to vote on corporate matters and receive dividends when declared.

Market Price

The present cost at which a product or service can be purchased or sold on the market.