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Assume That a Firm's Financial Analysts Determine That a Decrease

question 99

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Assume that a firm's financial analysts determine that a decrease in the firm's debt-to-assets ratio will cause a decrease in both the component cost of debt rd(1 − T)and the component cost of equity (rs).This information tells us that the firm's present debt-to-assets ratio is above its optimal ratio.

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Definitions:

Operant Conditioning

A learning process in which the strength of a behavior is modified by its consequences, such as reward or punishment.

Extinction

Within the field of psychology, a conditioned response gradually fades and ultimately vanishes.

Unconditioned Stimulus

Within the framework of classical conditioning, a stimulus inherently and spontaneously elicits a reaction without the necessity of prior learning.

Negative Punishment

A form of behavioral control that involves the removal of a desirable stimulus following a behavior to decrease the likelihood of that behavior occurring again.

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