______ Is a Secondary Source for Repayment of the Loan

question 40

Multiple Choice

______ is a secondary source for repayment of the loan if your cash flow from the business is insufficient to fulfill the obligation.

• A) Character
• B) Capital
• C) Collateral
• D) Capacity

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Definitions:

Fixed-cost Financing

Refers to the method of raising capital where the company incurs fixed financial charges, such as interest on bonds or dividends on preferred stock, regardless of its financial performance.

Financial Leverage

A strategy involving the use of borrowed money to increase the potential return of an investment.

Operating Leverage

The use of fixed as opposed to variable cost in a firm’s cost structure.

Combined Leverage

Refers to the use of both operating and financial leverage by a company to assess the potential impact on earnings due to changes in sales.