When a Company Has a Debt-To-Equity Ratio Close to 1

question 23

Multiple Choice

When a company has a debt-to-equity ratio close to 1 to 1,which of the following is true?

• A)The company is primarily using debt financing for acquisition of its assets.
• B)The creditors of the company would most likely be willing to give a loan to the company since debt is high.
• C)The return to shareholders is higher than it would be if the ratio was higher.
• D)The company's assets are financed almost equally by owners and creditors.

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Definitions:

Quantity Discounts

Price reductions based on the amount of a product purchased, incentivizing buyers to purchase in larger volumes.

Marginal Cost Curve

A graphical representation that shows how the cost of producing one more unit changes as production volume changes.

Variable Costs

Costs that vary directly with the level of production or output of a firm.

Total Revenue

The total income a firm receives from selling its goods or services, calculated as the quantity sold multiplied by the price per unit.