Which One of the Following Statements Concerning Financial Leverage Is

question 66

Multiple Choice

Which one of the following statements concerning financial leverage is correct?

• A)The benefits of leverage are unaffected by the amount of a firm's earnings.
• B)The use of leverage will always increase a firm's earnings per share.
• C)The shareholders of a firm are exposed to less risk anytime a firm uses financial leverage.
• D)Changes in the capital structure of a firm will generally change the firm's earnings per share.
• E)Financial leverage is beneficial to a firm only when the firm has negative earnings.

---

Definitions:

Finite Population Correction

An adjustment made to sampling formulas to account for the fact that the sample is drawn from a finite population, often resulting in smaller standard errors.

Standard Error

An estimate of the standard deviation of the sampling distribution of a statistic, typically used to measure the accuracy of a sample mean.

Normal Distribution

A probability distribution that is symmetrical around the mean, showing that data near the mean are more frequent in occurrence than data far from the mean.

Degrees of Freedom

The number of independent values or quantities that can vary in the analysis of statistical data, crucial for assessing the reliability of various statistics.