Successful Use of Financial Leverage Requires a Firm to

question 191

Multiple Choice

Successful use of financial leverage requires a firm to

• A) negotiate with lenders to establish a line of credit.
• B) establish and operate a venture capital organization to minimize the use of equity financing.
• C) register with the local government commission that administers market leverage.
• D) earn a higher return on its investments than the interest rate it pays to acquire funds.

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Definitions:

Principal

The main party to a transaction or contract who has authorized another (an agent) to act on their behalf, or the primary sum of money owed on a loan, excluding interest.

Third Party

An individual or entity that is not a direct participant or primary party involved in a transaction or legal matter.

Legal Capacity

The ability of an individual to understand and appreciate the consequences of their actions for the purpose of entering legally binding contracts or making other legal decisions.

Ratifies

To officially approve or confirm an agreement or contract, making it valid and legally binding.