The Effect of Financial Leverage on the Performance of the Firm

question 4

Multiple Choice

The effect of financial leverage on the performance of the firm depends on the

• A)expected rate of return on equity.
• B)firm's level of operating income.
• C)current market value of the debt.
• D)rate of dividend growth.

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Definitions:

Market Price

The current price at which an asset or service can be bought or sold on the open market.

Net Cash

The amount of cash available after accounting for cash inflows and outflows.

Financing Activities

Actions that result in changes in the size and composition of the equity capital or borrowings of the entity, as reflected in the company's cash flow statement.

Operating Activities

Day-to-day actions that are involved in running a business, such as selling products, managing expenses, and paying employees.