Sally Snooks Has Recently Completed This Class

question 30

Multiple Choice

Sally Snooks has recently completed this class.While attending her company's holiday party,she hears one of the executives mention that the company is heavily leveraged.Sally,who recently bought 300 shares in the company's stock,is very interested in this bit of information.What does Sally understand such leverage will do for her?

• A)It will increase the amount of taxes she will have to pay on her dividends.
• B)It is a time-proven way to both improve the expected return on equity and reduce the financial risk to shareholders. This is because reliance on debt means creditors are assuming most of the risk, while shareholders are entitled to most of the profits.
• C)It will protect her return on investment if the company experiences a downturn in sales.
• D)It means that the firm is financed with a sizeable amount of debt, which can increase the return on her investment in good times but can lead to a lower return when times are bad.

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Definitions:

Nausea

A feeling of sickness with an inclination to vomit, which can be a symptom of various conditions.

Appetite Cravings

Intense desires for specific foods or types of food, often unrelated to hunger.

Headache

A common condition that involves pain or discomfort in the head, scalp, or neck.

Musculomembranous Tube

A term describing a structure composed of muscle and membrane, forming a tubular shape; not a specific anatomical term but might refer to various tubular structures in the body such as the digestive tract.