Two Firms Have the Same Operating Structure and the Same

question 11

Multiple Choice

Two firms have the same operating structure and the same operating systematic risk, ß = .8. Firm 1 has 20% debt in their capital structure while Firm 2 has four units of debt for every 7 units of equity. If the tax rate faced by both firms is 0.4 which has the riskier equity?

• A) Firm 1 because it has a higher ratio of debt to equity.
• B) Neither because they both have the same ß = .8.
• C) Firm 2 because it has a higher ratio of debt to equity.
• D) Neither firm because systematic risk is unaffected by the financing.

---

Definitions:

Buying Center Cultures

involves the dynamics and behaviors within a group of individuals in an organization who participate in the purchasing decision process, each with distinct roles and influences.

B2B

Business-to-business, a transaction or business conducted between one business and another, such as wholesaler to retailer or manufacturer to distributor.

B2C

Business-to-Consumer, a business model focused on selling products and services directly to the individual customer.

Buying Processes

The series of steps consumers follow from recognizing a need, evaluating options, making a purchase decision, to post-purchase evaluation.