When a Firm Has Financial Leverage

question 23

Multiple Choice

When a firm has financial leverage:

• A)ROI will be greater than ROE.
• B)ROI will usually be less than it would be without leverage.
• C)risk is greater than if there wasn't any leverage.
• D)the firm will always have a higher ROE than it would without leverage.

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Definitions:

Carrying Cost

Carrying cost refers to the total cost of holding inventory, including storage, insurance, taxes, opportunity costs, and depreciation.

Order Cost

The administrative and logistical expenses associated with making and processing an order for goods or services.

Economic Order Quantity

An inventory management formula that determines the ideal order size to minimize the costs of holding and ordering inventory.

Variable Cost

Variable cost refers to expenses that change in proportion to the activity of a business, such as costs for raw materials or production that increase or decrease based on the volume of production.