The Use of Debt Financing

question 25

Multiple Choice

The use of debt financing

• A) may cause a manager to take on riskier projects in order to make interest payments.
• B) is more expensive than issuing equity due to the use of covenants.
• C) allows managers to make discretionary interest payments.
• D) limits the ability of managers to waste stockholder money.

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Definitions:

GDP Deflator

An economic metric that converts output measured at current prices into constant-dollar GDP, removing the effect of inflation.

Prices Rising

An economic scenario where the general level of prices for goods and services is increasing over time, often referred to as inflation.

CPI

A gauge called the Consumer Price Index assesses the weighted average price shifts in a collection of consumer products and services, encompassing areas like food, healthcare, and transportation.

Economists

Professionals who study the production, distribution, and consumption of goods and services, often focusing on research, analysis, and the development of economic theories.