The Use of Financial Leverage Will Be Detrimental to a Firm's

question 116

Multiple Choice

The use of financial leverage will be detrimental to a firm's ROE if the:

• A) firm has no long-term debt.
• B) firm's profit margin does not exceed its asset turnover.
• C) interest expense exceeds the tax liability.
• D) interest rate on debt exceeds the firm's ROA.

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Definitions:

Sole Seller

A market situation where only one seller exists for a particular product or service, often referred to as a monopoly.

Pure Monopoly

A market structure where a single supplier dominates the market, with no close substitutes for the product or service offered, leading to high control over prices.

Barriers to Entry

Economic, procedural, or regulatory obstacles that prevent new competitors from easily entering an industry or area of business.

Barriers to Entry

Obstacles that make it difficult for new firms to enter a market, such as high startup costs or stringent regulations.