The Effect of Financial Leverage on the Performance of the Firm

question 78

Multiple Choice

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

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

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Definitions:

Units-Of-Output Method

A depreciation method where the expense is calculated based on the units produced by the asset.

Depreciation Expense

This is the allocation of the cost of a tangible asset over its useful life.

Revenue

Income generated from normal business operations, usually from the sale of goods and services to customers.

Lessor

An entity or individual that leases or rents out an asset to another party, known as the lessee.