Which Statement Regarding Debt Is Correct,other Things Held Constant

question 17

Multiple Choice

Which statement regarding debt is correct,other things held constant?

• A)Firms whose assets are relatively liquid tend to have relatively low bankruptcy costs; hence, they tend to use relatively little debt.
• B)An increase in the personal tax rate is likely to increase the debt ratio of the average corporation.
• C)An increase in the company's degree of operating leverage is likely to encourage a company to use more debt in its capital structure.
• D)An increase in the corporate tax rate is likely to encourage a company to use more debt in its capital structure.

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Definitions:

Commission Recovery

The process by which a salesperson, agent, or broker seeks to reclaim commission fees that were not paid as agreed upon in a transaction.

Dual Agency

A real estate arrangement where one agent represents both the buyer and the seller in a transaction.

Apparent Authority

The ability of an agent to bind a principal where the principal has not notified third parties of the restricted or terminated authority of the agent.

Principal

A person on whose behalf an agent acts.