The Use of Financial Leverage Will Be Detrimental to a Firm's

question 96

Multiple Choice

The use of financial leverage will be detrimental to a firm's ROE if the:

• A) firm currently has no long-term debt.
• B) firm's current ratio is greater than 1.
• C) interest expense exceeds the tax liability.
• D) interest rate on debt exceeds the firm's ROA.

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Definitions:

Eustress

Positive stress, the kind felt when doing something one enjoys, such as playing tennis or attending a party.

Divorce

The legal dissolution of a marriage by a court or other competent body, ending the legal partnership between two spouses.

General Adaptation Syndrome

A theoretical framework describing the body's short-term and long-term reactions to stress, which includes stages of alarm, resistance, and exhaustion.

Fight-Or-Flight

A physiological response to perceived danger, preparing the body to either confront the threat or escape.