The Reason That Financial Leverage Increases Shareholder Risk Is That

question 47

Multiple Choice

The reason that financial leverage increases shareholder risk is that there is:

• A)More debt which increases the operating risk
• B)Less equity to absorb the operating risk
• C)Less business risk to be spread around
• D)More financial risk due to reduced business risk

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Definitions:

Costs

The value of resources spent in the process of producing or providing goods and services.

Cost Formula

A mathematical expression or equation used to calculate the total cost of production, taking into account fixed costs, variable costs, and output levels.

Activity Level

The degree to which resources are utilized in the production process, often measured in units produced, machine hours, or direct labor costs.

Total Cost

The sum of all expenses involved in producing a good or delivering a service, including fixed and variable costs.