Divine Paper, a United States-Based Company, Processes Wood Pulp into Paper

question 68

Multiple Choice

Divine Paper, a United States-based company, processes wood pulp into paper products in fixed-asset intensive facilities.It has a large ratio of property, plant, and equipment to total assets and a high debt-equity ratios.Which of the following is/are true?

• A)Divine Paper carries higher levels of risk than an electrical utility.
• B)Divine Paper does not have the regulated, monopoly status of an electrical utility.
• C)Sales of Divine Paper are more sensitive to changes in the level of business activity than those of an electric utility.
• D)The higher risk of Divine Paper, relative to an electric utility, raises its borrowing costs and decreases its reliance on debt financing.
• E)all of the above

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Definitions:

Price of Capital

This entails the expenses linked to acquiring and utilizing capital goods, such as machinery, indicating the return investors demand for use of their capital.

Cost-Minimizing

A strategy or process of finding the most efficient way to produce goods or services at the lowest possible cost.

Inputs

The resources (such as labor, capital, materials, and energy) used in the production process to produce goods and services.

Marginal Product

The increase in output that results from employing one more unit of a factor of production, holding all other factors constant.