The Main Reason That Many Businesses Fail When the Price

question 74

Multiple Choice

The main reason that many businesses fail when the price level is falling is that ________.

• A)deflation causes a decline in short-run aggregate supply
• B)as prices fall,businesses are unable to predict the quantity of output they will be able to sell
• C)the real value of the firms assets declines in proportion to the decrease in the price level
• D)falling prices mean that regular loan payments become increasingly difficult

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Definitions:

Cost of Equity

The return that shareholders require or expect to realize on their investment, representing the opportunity cost of investing in the company.

Yield

The earnings generated and realized on an investment over a particular period, expressed as a percentage of the investment's cost or current market value.

Risk Premium

The extra return or reward that an investor expects to receive for taking a higher risk compared to a risk-free asset.

Cost of Debt

The effective rate that a company pays on its current debt, including loans and bonds, often considered in capital structure decisions.