Debt Capacity Is Often Given as a Reason for the Value

question 28

Multiple Choice

Debt capacity is often given as a reason for the value of the stock falling when equity is issued.The reason for this is:

• A)the high issue costs of a debt offering must be paid by the shareholders.
• B)the priority position of the equity is lowered.
• C)management has information that the probability of default has risen, limiting the debt capacity and causing the firm to raise equity capital.
• D)All of the above.
• E)None of the above

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Definitions:

Intermittent Reinforcement

A conditioning schedule where only some responses are reinforced, making the behavior more resistant to extinction.

Desired Behavior

The specific actions or reactions that an individual, group, or organization aims to elicit from others.

Reinforcer

A stimulus or event that increases the likelihood of the recurrence of the behavior it follows.

Deliberately

Done consciously and intentionally; often implying careful thought or planning.