Which of the Following Is One of the Reasons for Attempting

question 3

Multiple Choice

Which of the following is one of the reasons for attempting to increase a business's financial leverage?

• A) It can have a positive impact on the business's return on equity.
• B) The business has to be grown with one's own money.
• C) The interest on debt has a non-deductible nature.
• D) It may lead to an inability to pay the interest on the debt.
• E) It increases a business's overall risk.

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Definitions:

Beta

The measure of market risk in portfolio theory. The degree to which a stock’s return moves with the market’s return.

Cost of Capital

The vital rate of earnings a company must generate from its investment plans to preserve its standing in the market and appeal for investments.

Treasury Bills

Short-term government securities with maturities ranging from a few days to 52 weeks, sold at a discount from their face value.

Financial Option

A contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified strike price.