If a Firm Chose to Increase Its Debt Ratio from 20

question 7

Multiple Choice

If a firm chose to increase its debt ratio from 20% to 40%, what is the potential risk?

• A) The average cost of capital would most likely rise.
• B) The price of the firm's common stock would definitely decline.
• C) If economic forces cause a reduction of sales, the firm's EPS might decline.
• D) The firm's WACC might decline.

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Definitions:

Organic Chemicals

Compounds containing carbon that are found in or produced by living systems.

Thermal Water Pollution

Pollution caused by discharging hot water or industrial effluents into rivers or seas, affecting aquatic life and ecosystems.

Cooling Towers

Structures that remove heat from water or other liquids through the process of evaporation, often used in power plants and industrial facilities.

Ecologically Vulnerable

Refers to ecosystems that are exceptionally sensitive to environmental changes or disturbances.