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:

Aggregate Supply Curve

A graphical representation that shows the total quantity of goods and services that producers in an economy are willing to supply at different price levels during a specific time period.

Total Investment

Total investment refers to the sum of all expenditures on capital goods by businesses and government within a specific time period.

Keynesian Range

A segment of the aggregate supply curve where output can increase without an increase in price levels, related to Keynesian economics theories.

Full Capacity

The maximum level of output that a company can sustain over a period without increasing long-term costs, often achieved by optimizing the use of resources.