Which of the Following Statements About Debt Is True

question 60

Multiple Choice

Which of the following statements about debt is true?

• A) Increasing debt increases the firm's flexibility.
• B) As debt increases, distress costs decrease.
• C) Using debt causes a loss of ownership by the firm.
• D) Using debt allows the firm to earn money using someone else's money.
• E) As the level of debt increases, the firm's credit rating begins to matter less.

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Definitions:

Fixed Expenses

Costs that do not fluctuate with the volume of sales or production levels, remaining constant even as business activities change.

Unit Selling Price

The price for which a single unit of a product is sold, excluding any discounts or allowances.

Contribution Margin

The amount of revenue from sales that exceeds variable costs, indicating how much contributes to covering fixed costs and generating profits.

Unit Selling Price

Unit Selling Price is the price at which a single unit of a product or service is sold, not accounting for any discounts or promotions.