Which of the Following Statements About Financial Risk Is Incorrect

question 47

Multiple Choice

Which of the following statements about financial risk is incorrect?

• A) The higher the debt-to-equity ratio, the higher the degree of financial risk.
• B) Interest payments on debt must be paid when they fall due.
• C) When a business fails equity holders rank ahead of providers of debt due to their higher financial risk.
• D) The higher the proportion of debt the higher the potential return on shareholders' funds.

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Definitions:

Rivalry

Competition between companies in the same industry aimed at achieving higher sales, market share, and recognition by consumers.

Market Share

The portion of a market controlled by a particular company, product, or brand, often expressed as a percentage of total sales.

Competitors

Other businesses or individuals that offer similar products or services within the same market.

Variable Costs

Costs that change in proportion with the level of output or activity.