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:

Agricultural Product

Goods derived from farming and the cultivation of the land, including crops, livestock, and other raw materials.

Farmers' Incomes

Refers to the financial earnings of individuals or families engaged in agriculture, significantly influenced by market prices, yield, and costs.

Demand Graph

A graphical representation showing the relationship between the price of a good and the quantity demanded by consumers at various price levels.

Inelastic Demand

A characteristic of demand where the quantity demanded changes minimally in response to price changes.