Which of the Following Statements Is Correct

question 105

Multiple Choice

Which of the following statements is correct?

• A) Increasing the amount of firm debt increases both the expected cash flows to equity holders and the number of shares outstanding.
• B) Increasing the amount of firm debt increases both the expected cash flows to equity holders and the amortization.
• C) Increasing the amount of firm debt increases both the expected cash flows to equity holders and the volatility of those cash flows.
• D) Increasing the amount of firm debt increases both the expected cash flows to equity holders and the tax liability.

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Definitions:

Downstream Transactions

Transactions where a parent company sells to, buys from, or otherwise transacts with its subsidiary, affecting the financial statements of both entities.

Gross Profit Percentage

A financial metric that indicates the portion of revenue that exceeds the cost of goods sold, expressed as a percentage.

Non-Controlling Interest

The portion of equity interest in a subsidiary not attributable to the parent company, representing minority shareholders' claim on assets and earnings.

Intercompany Gain

Profit derived from transactions between subsidiaries or divisions of the same company.