The Initial Impact of Increasing the Use of Debt for a Firm

question 9

Multiple Choice

The initial impact of increasing the use of debt for a firm which had no prior debt financing is to:

• A) lower the cost of capital
• B) lower the weight of the debt component
• C) increase the cost of capital
• D) lower the cost of retained earnings

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Definitions:

Coefficient of Correlation

A measure that indicates the extent to which two variables fluctuate together. A value closer to 1 or -1 indicates a strong relationship, while a value near 0 suggests no relationship.

X and Y

Typically used to represent independent and dependent variables in a mathematical function or data set, respectively.

Marginal Probability

is the probability of an event occurring without considering other related events.

Coefficient of Correlation

The coefficient of correlation, also known as Pearson's r, measures the strength and direction of a linear relationship between two quantitative variables.