Firms a and B Are in All Points Identical with the Exception

question 4

Multiple Choice

Firms A and B are in all points identical with the exception of their choice of sources of financing outside their shareholders' equity.Firm A has one third of its liabilities in the form of long-term loans,one third in the form of overdraft and one third representing accounts payables.Firm B has two third of its liabilities as interest-bearing long-term debt,no overdraft and one third as accounts payable.In the first year of their operations,in a 'normal' interest market,which of the two firms will show the higher profit after interest expenses (before taxes) .

• A) Firm B will have the higher profit before taxes.
• B) Firm A will show the higher profit before taxes.
• C) Both firms will report the same amount of profit.

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Definitions:

Independent Variables

These are factors in a model or experiment that are adjusted or classified to examine their influence on the outcomes measured by dependent variables.

Error Variable

A random variable in statistical models representing the amount by which an observed outcome deviates from the predicted outcome, due to unexplained or random effects.

Multiple Regression

Multiple regression is a statistical technique that uses several explanatory variables to predict the outcome of a response variable.

Probability Distribution

A mathematical equation that provides the probability values for different possible experiments' outcomes.