The Lower Risk Nature of Long-Term Debt in a Firm's

question 61

Multiple Choice

The lower risk nature of long-term debt in a firm's capital structure is due to the fact that ________.

• A) the debt holders are the true owners of the firm
• B) equity capital has a fixed return
• C) creditors have a higher position in the priority of claims
• D) dividend payments are tax-deductible

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Definitions:

Substitutes

Substitutes are goods or services that can be used in place of each other, where the consumption of one increases, the demand for the other decreases.

Increase Demand

A rise in the quantity of a product or service that consumers are willing and able to purchase at a given price, usually due to factors like income growth, price decrease of the good, or changes in tastes and preferences.

Demand Curve

A graphical representation showing the relationship between the price of a good and the quantity demanded by consumers at various price levels.

Slopes Upward

Describes a line or curve on a graph that represents an increase in the variable on the y-axis as the variable on the x-axis increases, suggesting a positive relationship between the two variables.