Within Reasonable Parameters,if a Firm Increases Its Debt as a Proportion

question 35

Multiple Choice

Within reasonable parameters,if a firm increases its debt as a proportion of its capital structure:

• A)its overall cost of capital increases because the amount of interest it has to pay increases.
• B)WACC declines because of the tax advantage of debt.
• C)WACC increases because the proportion of interest to dividends increases.
• D)its costs increase because it is contractually required to pay interest,while dividends are paid in the firm's discretion.

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Definitions:

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Sales Orientation

A business approach that prioritizes the selling of products and services over understanding the needs and preferences of the consumer, focusing on sales volume.

Marketing Concept

A philosophy that firms should analyze the needs of their customers and then make decisions to satisfy those needs, better than the competition.