The "Predation" Explains That

question 16

Multiple Choice

The "predation" explains that:

• A)if a preferred financing source is not available,the firm will try to raise funding through the next preferred choice.
• B)there is a natural hierarchy of preferred financing routes for managers wishing to raise funds.
• C)firms weigh the costs of having too much debt when they are doing poorly against the tax benefits of debt when they are doing well to arrive at their optimal capital structures.
• D)a competitor might purposely lower its prices in an attempt to drive the highly levered competitor out of business.

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Definitions:

Expected Return

The anticipated profit or loss from an investment over a given period.

Company

An entity engaged in commercial, industrial, or professional activities.

Expected Return

The anticipated return on an investment, calculated by considering the potential outcomes, their probabilities, and the returns associated with each.

Investment

The allocation of resources (such as time, money, or effort) in expectation of achieving a future return.