If a fiRm Is Using fiNancial Leverage Successfully What Would

question 122

Multiple Choice

If a firm is using financial leverage successfully what would be the impact of doubling operating earnings?

• A) The return on equity will increase, but not double
• B) The return on equity will double
• C) The return on equity will more than double
• D) The return on equity will decline by half

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Definitions:

APS

Average Propensity to Save, the proportion of total income that is saved by a household or economy.

Saving

The act of setting aside a portion of income for future use, typically in a bank account or other secure investment.

Disposable Income

Resources meant for household spending and saving once income tax obligations are settled.

APC

The average propensity to consume, which is the fraction of total income that is spent on consumption as opposed to being saved.