Which of the Following Statements Is False

question 122

Multiple Choice

Which of the following statements is false?

• A) Combined leverage is the effect on earnings produced by the operating and financial leverage.
• B) There is strong empirical evidence that firms adjust their degrees of operating leverage and degrees of financial leverage to match some standard degree of combined leverage.
• C) Financial risk is the additional risk, above business risk, resulting from substituting debt into the capital structure.
• D) A firm's degree of combined leverage is the product of its degree of operating leverage and its degree of financial leverage.

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Definitions:

Dividend Yield

A financial measurement that illustrates the annual amount a company dispenses in dividends compared to its current stock price.

P/E Ratio

The ratio of a company's share price to its earnings per share, indicating the value the market places on its earnings.

Earnings Retention Ratio

The proportion of net earnings not paid out as dividends but retained by the company to be reinvested in its core business, or to pay debt.

Dividend Payout Ratio

The percentage of net income a firm pays to its shareholders as dividends.