Financial Leverage

question 66

Multiple Choice

Financial leverage:

• A)increases as the net working capital increases.
• B)is equal to the market value of a firm divided by the firm's book value.
• C)is inversely related to the level of debt.
• D)is the ratio of a firm's revenues to its fixed expenses.
• E)increases the potential return to the stockholders.

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Definitions:

Quadruple

To multiply or increase fourfold; also refers to a quantity that is four times as large as another.

Effective Annual Rate

The interest rate that is adjusted for compounding over a yearly period.

Per Month

A term used to describe an action or event that occurs once every month.

Quarterly Compounding

A financial process where interest is added to the principal sum of a deposit or loan at the end of each quarter, resulting in the interest bearing interest.