The Concept of Leverage Is

question 183

Multiple Choice

The concept of leverage is

• A) it is appropriate to borrow if the return on the assets is greater than the cost of the financing.
• B) it is appropriate to borrow as long as the lender approves the loan.
• C) it is unfavorable to borrow funds rather than raise the capital from stockholders.
• D) that a high debt-to-equity ratio is favorable.

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Definitions:

Expected Cost

The anticipated expense associated with an action or decision, often incorporating probabilities of various outcomes.

Profit Sharing

A company policy of distributing a portion of its profits among its employees, often as a form of incentive or reward.

Marginal Cost Function

A mathematical representation that shows how the cost of producing one additional unit of output varies as production changes.

Total Cost Function

The mathematical representation that describes how total cost varies with the level of output, encompassing both fixed and variable costs.