Which of the Following Statements on Financial Leverage Is True

question 46

Multiple Choice

Which of the following statements on financial leverage is true?

• A)Financial leverage has no effect on expected return to ordinary shareholders.
• B)Expected return to ordinary shareholders increases because return on borrowings is expected to exceed the cost of borrowings.
• C)Expected return to ordinary shareholders increases because the return on assets increases.
• D)Financial leverage may have a positive or negative effect on return to ordinary shareholders.

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Definitions:

Differential Prices

Pricing strategy where the same product or service is sold at different prices to various market segments or in different regions.

Price Discrimination

The strategy of selling the same product at different prices to different groups of consumers.

Total Holding Cost

The sum of all costs associated with holding inventory, including storage, insurance, spoilage, and opportunity costs.

Optimal Number

The most favorable quantity or figure that achieves the best outcome or efficiency for a specific context or objective.