Which of the Following Statements Concerning a Firm's Degree of Financial

question 1

Multiple Choice

Which of the following statements concerning a firm's degree of financial leverage (DFL) is correct? Assume everything else is equal. 

• A)If the firm issues additional common stock, its DFL should increase.
• B)Compared to a lower DFL, a higher DFL implies a greater financial risk.
• C)Compared to a higher DFL, a lower DFL implies a greater financial risk.
• D)If the firm issues additional long-term debt, its DFL should decrease.
• E)The firm's DFL cannot be negative.

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Definitions:

Equilibrium Price

The cost at which the amount of a product consumers want to buy matches the amount producers are willing to sell, leading to equilibrium in the market.

Gigabyte

A unit of digital information storage equivalent to approximately 1 billion bytes (1,000 megabytes).

Computer Memory

A device or system used to store digital information for immediate use in a computer or related computer hardware.

Equilibrium Price

The price at which the quantity of a product demanded by consumers equals the quantity supplied by producers.