We Use the Term Leverage to Describe the Use of Debt

question 40

Multiple Choice

We use the term leverage to describe the use of debt in the firm's capital structure because:

• A) it magnifies the potential expected return to equity and the variability of that expected return.
• B) it magnifies the risk of bankruptcy.
• C) it magnifies earnings per share.
• D) none of the options.

---

Definitions:

Licensing Standards

Official regulations and requirements set by authorities that individuals or organizations must meet to legally offer professional services.

Scientific Grounding

The foundation of knowledge or practice based on empirical evidence and principles of the scientific method.

Homeopathic Doctors

practice homeopathy, a form of alternative medicine based on the belief that the body can cure itself using tiny amounts of natural substances.

Dilute Solutions

Mixtures that contain a relatively small amount of solute compared to the amount of solvent, resulting in a lower concentration.