The Most Acceptable View of Capital Structure, According to the Text

question 20

Multiple Choice

The most acceptable view of capital structure, according to the text, is that the weighted average cost of capital

• A) first falls with moderate levels of leverage and then increases as a firm's leverage becomes high.
• B) does not change with leverage.
• C) increases proportionately with increases in leverage.
• D) increases with moderate amounts of leverage and then falls.

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Definitions:

Commitment Fee

A fee paid by a borrower to a lender to keep a line of credit open or to guarantee a loan's terms.

Contractual Agreement

A contractual agreement is a legally binding exchange of promises or an agreement between parties that is enforceable by law.

Accruals

Accounting method where revenues and expenses are recorded when they are earned or incurred, regardless of when the cash transaction happens.

Financing

The act of providing funds for business activities, making purchases, or investing, including means such as loans, equity investments, and other financial instruments.