As Debt Is Substituted for Equity in the Capital Structure

question 139

Multiple Choice

As debt is substituted for equity in the capital structure and the debt ratio increases, the behavior of the overall cost of capital is partially explained by ________.

• A) the tax-deductibility of interest payments
• B) the increase in the number of common shares outstanding
• C) the reduction in risk as perceived by the common shareholders
• D) the decrease in the cost of equity

Identify the limitations and criticisms of both cognitive and behavioral theories.

Distinguish between the principles of reinforcement schedules in behavior modification.

Understand Freud's psychosexual stages and their sequence.

Recognize the development and role of defense mechanisms according to Freudian theory.

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Definitions:

Stock Dividends

A distribution of a company's earnings to shareholders in the form of additional shares, rather than cash.

Stock Split

A corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares, although the overall value of the company does not change.

Retained Earnings

Retained Earnings represent the cumulative amount of net income earned by a company that is reinvested in the business, not distributed to shareholders as dividends.

Cumulative Preferred Stock

A type of preferred stock where dividends accumulate if not paid in a given period and must be paid out before dividends to common stockholders.