Which One of the Following Statements Concerning Financial Leverage Is

question 22

Multiple Choice

Which one of the following statements concerning financial leverage is correct?

• A)Financial leverage increases profits and decreases losses.
• B)Financial leverage has no effect on a firm's return on equity.
• C)Financial leverage refers to the use of common stock.
• D)Financial leverage magnifies both profits and losses.
• E)Increasing financial leverage will always decrease the earnings per share.

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Definitions:

Marginal Tax Rate

The marginal tax rate is the rate at which the last dollar of income is taxed, reflecting the proportion of additional income that is paid in taxes.

Progressive Tax

A tax system where the tax rate increases as the taxable amount or income goes up, making it proportionately higher for wealthier individuals or entities.

Individual Income

The total earnings received by an individual from all sources, including wages, investments, and other forms of compensation.

Marginal Tax Rate

Refers to the rate at which the last dollar of income is taxed, indicating how much tax will be paid on an additional dollar of income.