Financial Risk Refers to The

question 98

Multiple Choice

Financial risk refers to the:

• A) risk of owning equity securities.
• B) risk faced by equityholders of firms with debt.
• C) general business risk of the firm.
• D) possibility that interest rates will increase.

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Definitions:

EBIT

EBIT stands for earnings before interest and taxes, and it's a measure of a firm's profit that includes all expenses except interest and income tax expenses.

Operating Leverage (DOL)

A measure of how revenue growth translates into growth in operating income, indicating the fixed versus variable costs of a business.

Variable Cost

A cost that changes in proportion with the level of output or activity.

Fixed Costs

Business expenses that remain unchanged regardless of the level of production or sales activities, such as rent, salaries, and insurance.