Which of the Following Is NOT Accurate Regarding fiNancial Leverage

question 126

Multiple Choice

Which of the following is NOT accurate regarding financial leverage?

• A) Whenever a firm's debt increases faster than its equity, financial leverage increases.
• B) Leverage is most beneficial when EBIT is relatively high.
• C) Investors can undo the effects of the firm's capital structure by using homemade leverage.
• D) Increasing financial leverage will always increase the EPS for stockholders.
• E) The level of financial leverage that produces the highest firm value is the one most beneficial to stockholders.

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Definitions:

Passive Investment

An investment strategy that involves minimal buying and selling actions, typically focused on long-term investments in index funds or ETFs.

Hedge Funds

Investment funds that employ various strategies to earn active return, or alpha, for their investors, often involving leverage, derivatives, and short selling.

Intensively Bought

Refers to securities that are being purchased in large volumes over a short period, indicating strong investor interest or confidence in the asset.

Stock Prices

The market price at which a share of stock is bought or sold in the stock market, influenced by various factors including company performance and market conditions.