The Underlying Reason That Leverage May Increase Stock Price Is

question 112

Multiple Choice

The underlying reason that leverage may increase stock price is that under certain conditions:

• A)it increases risk, which in turn requires a larger return on equity.
• B)it improves performance measured in terms of EBIT and EPS.
• C)it improves performance measured in terms of ROE and EPS.
• D)it is cheaper to raise new debt than it is to raise new equity.

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Definitions:

Income

The money received by an individual or entity in return for their labor, from transfers, or from investments.

Middle Three Quintiles

The middle three quintiles refer to the middle segments of a population when it is divided into five equal parts based on income or wealth, often used to represent the middle class.

Income Received

The total earnings obtained by individuals or entities, typically through employment, investments, or other sources, during a specified period.

Lower Two Quintiles

Refers to the bottom 40% of a population when it is divided into five equal groups according to income levels.