The Degree of Financial Leverage for Aries Inc

question 70

Multiple Choice

The degree of financial leverage for Aries Inc.is 3.0,and the degree of financial leverage for Common Capital Corporation is 6.2.According to this information,which firm is considered to have greater overall (total) risk?

• A) Aries Inc.
• B) Common Capital Corporation.
• C) The degree of financial leverage is a measure of financial risk,so the only conclusion that can be made with the information given is that Common Capital Corporation has greater financial risk than Aries Inc.⎯ we cannot tell which firm has greater total risk.
• D) To determine which firm has the greater total risk,we need to know the financial breakeven point of each firm.
• E) None of the above is a correct answer.

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Definitions:

Sympathetic Nervous System

Part of the autonomic nervous system that prepares the body for quick response to stress by accelerating the heart rate and increasing blood pressure, among other functions.

Adrenal Medulla

The inner part of the adrenal glands that secretes adrenaline and noradrenaline, involved in the body's fight-or-flight response.

Hormones

Chemical messengers produced by glands in the body that regulate various functions by traveling through the bloodstream to tissues and organs.

General Adaptation Syndrome

A theoretical framework describing the body's short-term and long-term reactions to stress, consisting of three stages: alarm, resistance, and exhaustion.