Which of the Following Statements Is Correct

question 38

Multiple Choice

Which of the following statements is correct?

• A) The effect of increasing a firm's use of financial leverage is to decrease the volatility of the firm's earnings.
• B) The effect of increasing a firm's use of financial leverage could be either to increase or decrease the volatility of the firm's earnings depending on how much leverage is utilized.
• C) The effect of increasing a firm's use of financial leverage is to increase the volatility of the firm's earnings.
• D) None of the statements are correct.

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Definitions:

Financial Reporting

The method of generating reports that reveal the financial condition of an organization to its management, investors, and regulatory bodies.

Variable Cost

Costs that change in proportion to the level of activity or volume, such as raw materials and direct labor.

Units Sold

A measure of the quantity of inventory items that a company has sold to its customers within a particular period.

Prime Cost

The combined cost of direct materials and direct labor involved in manufacturing a product.