Which Statement Is Correct About Financial Leverage

question 48

Multiple Choice

Which statement is correct about financial leverage?

• A)Leverage can increase an investor's returns but also increases the risk of loss.
• B)Leverage can decrease an investor's returns and also decrease the risk of loss.
• C)Leverage decreases the payments that a company makes on an ongoing basis.
• D)Leverage decreases the debt level relative to a company's equity base.

Understand the constructs that allow societies and groups to engage in warfare and legitimize violent actions.

Understand how taxes affect both buyers and sellers in the market.

Analyze the impact of taxes on market equilibrium, including changes in surplus and tax revenue.

Identify how taxes shift supply and demand curves.

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Definitions:

Operating Leverage

A metric assessing the impact of increased sales on operational earnings, revealing the balance between a firm's fixed and variable expenses.

EBIT

Earnings Before Interest and Taxes, a measure of a company's profitability that excludes interest and income tax expenses to show the business's core profitability.

DOL

Department of Labor, a U.S. government department responsible for occupational safety, wage standards, unemployment insurance benefits, re-employment services, and some economic statistics.

Financial Leverage

The use of debt to increase the potential return of an investment.