Which of the Following Statements Is Incorrect

question 75

Multiple Choice

Which of the following statements is incorrect?

• A) Higher financial leverage involves higher risk.
• B) Risk is higher if a company has higher assets.
• C) Risk is higher if a company has more liabilities.
• D) The debt ratio is used to measure financial risk.
• E) Lower financial leverage involves lower risk.

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Definitions:

Participating Preferred Stock

A type of preferred stock that provides holders the right to dividend payments exceeding the basic fixed rate if the company meets specified financial performance criteria.

Common Shareholders

Individuals or entities that own shares of a company's common stock, granting them rights to dividends and voting in the company.

Dividends Paid

The portion of a company's earnings that is distributed to shareholders as a return on their investment.

Paid-in Capital

The total amount of money that shareholders have invested in a company through the purchase of its stock.