If a Firm Chose to Increase Its Debt Ratio from 20

question 50

Multiple Choice

If a firm chose to increase its debt ratio from 20% to 40%,what is the potential risk?

• A)The average cost of capital would most likely rise.
• B)The price of the firm's ordinary shares would definitely decline.
• C)If economic forces cause a reduction of sales,the firm's EPS might decline.
• D)The firm's WACC might decline.

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Definitions:

Fiber

A dietary substance found in cereals, fruits, and vegetables, known for its importance in digestive health and regulating blood sugar levels.

Glycogen

An excess of glucose that is stored in the liver and in skeletal muscle.

Carbohydrates

Essential nutrients found in sugars, starches, and fibers that provide energy to the body’s cells, tissues, and organs.

Calorie

A unit used to measure the amount of energy food produces; the amount of energy needed to raise the temperature of 1 kg of water by 1°C.