If Firms Were Faced with Greater Uncertainty Because of Concern

question 115

Multiple Choice

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. In response to this change, someone who advocated "lean against the wind" policies might advocate

• A)decreasing the money supply.
• B)increasing taxes.
• C)increasing government expenditures.
• D)decreasing government expenditures.

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Definitions:

Capital Structure

The mix of various forms of financing used by a firm to fund its operations, such as equity, debt, and hybrid instruments.

Capital Budgeting

The process of planning and evaluating investments in assets and projects with long-term implications for a company's financial health.

Offered Rate

The rate of interest that a lender is willing to offer to a borrower for a specific loan, often influenced by market conditions.

Cost of Capital

The rate of return that a company must pay after accounting for the cost of all sources of financing: debt, equity, and any other financing sources.