The Use of Financial Leverage by the Firm Has a Potential

question 40

Multiple Choice

The use of financial leverage by the firm has a potential impact on which of the following?
(1) The risk associated with the firm.
(2) The return experienced by the shareholder.
(3) The variability of net income.
(4) The degree of operating leverage.
(5) The degree of financial leverage.

• A) 1, 2, 3, 5
• B) 2, 3, 5
• C) 1, 3, 5
• D) 2, 3, 4, 5
• E) 1, 2, 5

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Definitions:

Employment

A relationship between an employer and an employee where the employee provides labor in exchange for compensation under agreed terms.

Warranty Expense

Costs anticipated by a company for the repair or replacement of defective products during the warranty period, treated as a liability until used.

Estimated Cost

A projection or forecast of the total costs associated with completing a project, manufacturing a product, or providing a service.

FICA Taxes

Taxes imposed on both employees and employers to fund Social Security and Medicare in the United States.