Which One of the Following Statements Concerning fiNancial Leverage Is

question 265

Multiple Choice

Which one of the following statements concerning financial leverage is correct in a world without taxes?

• A) Leverage is beneficial only when EBIT is relatively low.
• B) EPS is decreased when leverage is used and the expected level of EBIT is achieved.
• C) Financial leverage lowers the risk level of a firm.
• D) The amount of financial leverage employed has a major effect on the value of the firm.
• E) M&M Proposition I states that financial leverage is irrelevant to the value of a firm.

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Definitions:

Buffer

In communication, a buffer is a neutral or positive statement used to soften the impact of negative information or to ease into a difficult topic.

Spotlight

A feature or attention focused intently on someone or something, highlighting them in a significant or prominent way.

Indirect Strategy

A communication tactic wherein the main point or objective is introduced after the provision of background information or arguments, often utilized to prepare the audience for the message.

Hostile Reaction

A negative response or opposition encountered usually as a result of an action taken or a proposal made.