A Firm Has Level Coupon Debt Outstanding and Growth Opportunities

question 26

Multiple Choice

A firm has level coupon debt outstanding and growth opportunities.

• A) The firm should be 100% debt financed because the greater the debt the greater tax shield.
• B) 100% debt financing is suboptimal because increased firm value does not increase the current interest needed to shield income today.
• C) Firm value will only increase if the debt level is increased to 100%.
• D) The high growth firm will have high debt ratios as they need greater financing.

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Definitions:

Electrical Resistance

The measure of the difficulty electrons face in flowing through a conductor, resulting in heat generation and energy dissipation.

Sectional Area

Sectional area refers to the area of a particular cross-section of a material or structural element, significant in physics and engineering for calculating stress, resistance, and other material properties.

Electrical Current Flow

The movement of electrically charged particles through a conductor or space, typically measured in amperes (A).

Conventional Theory

Asserts that current flows from positive to negative. Most automotive wiring schematics, terminology, and troubleshooting procedures are based on conventional theory. Its opposite is electron theory.