The Reason That Financial Leverage Increases Shareholder Risk Is That

question 79

Multiple Choice

The reason that financial leverage increases shareholder risk is that there is:

• A) more debt which increases the operating risk.
• B) less equity to absorb the operating risk.
• C) less business risk to be spread around.
• D) more financial risk due to reduced business risk.

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Definitions:

Conjunction

A logical operator that combines two statements or conditions, both of which must be true for the overall statement to be true.

Equivalent Statements

Statements that are logically similar in that they always have the same truth value in every possible scenario.

Conjunction

In logic, a connective that combines multiple statements or propositions to form a single proposition that is true only if all its components are true.

Contradictory Statements

Assertions that are directly opposed to each other, so that if one is true, the other must be false.