What Is the Main Advantage of Financial Leverage

question 59

Multiple Choice

What is the main advantage of financial leverage?

• A) It reduces the firm's interest expense.
• B) It increases the expected return to shareholders.
• C) It reduces the amount of risk the firm faces.
• D) It provides the firm with more flexible financing.

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Definitions:

Capital Substitute

An investment or process that replaces or reduces the need for capital investment, often through technology or innovative methods.

Unionized

The state of being organized into a union or labor organization to negotiate collectively with employers.

National Income

The total amount of money earned within a country from its economic activities in a given period, typically measured as GDP minus income from abroad plus income from foreign sources.

Labor Force

The total number of people employed or seeking employment in a country or specific area.