Firm X Plans to Increase Its Financial Leverage by Issuing

question 89

Multiple Choice

Firm X plans to increase its financial leverage by issuing debt and using the proceeds to repurchase equity.If you assume that the Modigliani and Miller assumptions hold,then the effect of this increasing financial leverage transaction should

• A) increase the market value of Firm X's shares.
• B) have no effect on the market value of Firm X's shares.
• C) decrease the market value of Firm X's shares.
• D) it is not possible to tell what will happen.

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Definitions:

Observational Learning

Learning that occurs through observing the behaviors of others and the outcomes of those behaviors.

Classical Conditioning

The process by which learning is facilitated through the connection of a stimulus from the environment with one that occurs innately, resulting in a conditioned reaction.

Operant Conditioning

A learning process in which the strength of a behavior is modified by reinforcement or punishment.

Acquisition Procedures

Methods or processes used in learning or obtaining new information, skills, or responses.