In the Traditional Approach to Capital Structure, as the Amount

question 132

Multiple Choice

In the traditional approach to capital structure, as the amount of debt increases in a firm's capital structure, ________.

• A) the cost of equity rises faster than the cost of debt
• B) the cost of debt rises faster than the cost of equity
• C) debt becomes less risky
• D) equity cost is unaffected

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Definitions:

Elasticity

A measure of how much the quantity demanded or supplied of a good responds to changes in price, income, or other factors.

Demand

The desire to purchase goods and services backed by the ability and willingness to pay a price.

Elasticity

A measure of how much the quantity demanded or supplied of a good responds to a change in one of its determinants, such as the price.

Excise Tax

Excise tax is a type of tax imposed on specific goods, services, or activities, typically to discourage consumption or generate revenue, often included in the purchase price.