Using More Debt in the Firm's Capital Structure

question 12

Multiple Choice

Using more debt in the firm's capital structure

• A) decreases the probability of filing for bankruptcy.
• B) raises the riskiness of the firm's earnings stream.
• C) generally leads to a lower expected rate of return.
• D) none of the above.

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Definitions:

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, indicating the sensitivity of demand to price changes.

Linear

Pertaining to a relationship or an equation that can be represented by a straight line in a graphical representation, illustrating a constant rate of change.

Downward-Sloping

A characteristic of a graph or curve that shows a decrease in one variable in response to an increase in another, commonly seen in demand curves.

Constant Elasticity

A condition in economics where the elasticity of one variable with respect to another is consistent across different levels of those variables.