The Increase in Risk to Equity Holders When Financial Leverage

question 11

Multiple Choice

The increase in risk to equity holders when financial leverage is introduced is evidenced by:

• A)higher EPS as EBIT increases.
• B)increased use of homemade leverage.
• C)a higher variability of EPS with debt than all equity.
• D)equivalence value between levered and unlevered firms in the presence of taxes.
• E)None of the above.

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Definitions:

Flight Attendant

An airline employee responsible for ensuring the safety, security, and comfort of passengers aboard flights.

Commercial Aircraft

A type of aircraft designed and used for transporting passengers and cargo for business purposes.

Liable

Legally responsible or obligated.

Bailment

The legal relationship where physical possession of personal property is transferred from one person (the bailor) to another (the bailee) who subsequently has possession of the property under a contract.