Which Statement Is Correct About Financial Leverage

question 35

Multiple Choice

Which statement is correct about financial leverage?

• A)It reduces the risk of bankruptcy to the company.
• B)It reduces the level of risk exposure of the shareholders.
• C)It quantifies the relationship between the relative level of a firm's debt and its equity base.
• D)It has nothing to do with the relationship between the relative level of a firm's debt and its equity base.

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Definitions:

Test Statistic

A value calculated from sample data that is used in a hypothesis test to determine whether to reject the null hypothesis.

Slope

The rate of change of the dependent variable with respect to an independent variable in a linear relationship.

Standard Error of Estimate

A measure of the accuracy of predictions made with a regression line, indicating the typical distance that the observed values fall from the regression line.

Coefficient of Determination

A statistical measure represented by R-squared, indicating the proportion of the variance in the dependent variable predictable from the independent variable(s).