The Stepping-Stone Method

question 75

Multiple Choice

The stepping-stone method:

• A) is an alternative to using the northwest-corner rule.
• B) often involves tracing closed paths with a triangular shape.
• C) is used to identify the relevant costs in a transportation problem.
• D) is used to evaluate the cost effectiveness of shipping goods via transportation routes not currently in the solution.
• E) helps determine whether a solution is feasible or not.

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Definitions:

Capital Structure

Capital structure refers to the mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity, which is considered when financing its overall operations and growth.

Bankruptcy Risk

Bankruptcy risk refers to the likelihood that a company will be unable to meet its debt obligations and may be forced into bankruptcy.

Agency Costs

Expenses arising from the conflict of interest between a company's management or its shareholders and its creditors.

Financial Risk

The risk added by the use of debt financing. Debt financing increases the variability of earnings before taxes (but after interest); thus, along with business risk, it contributes to the uncertainty of net income and earnings per share. Business risk plus financial risk equals total corporate risk.