Which of the Following Statements About Financial Leverage Is True

question 7

Multiple Choice

Which of the following statements about financial leverage is true?

• A) Financial leverage is the responsiveness of the firm's EBIT to fluctuations in sales.
• B) Financial leverage involves the incurrence of fixed operating costs in the firm's income stream.
• C) Financial leverage is the responsiveness of the firm's EPS to fluctuations in EBIT.
• D) Financial leverage reduces a firm's risk.

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Definitions:

Change Blindness

Change blindness is a psychological phenomenon where a change in a visual stimulus goes unnoticed by the observer, demonstrating limitations in attention and perception.

Inattentional Blindness

A cognitive phenomenon where an individual fails to perceive an unexpected stimulus in plain sight, due to the focus of attention elsewhere.

Delusions

False beliefs maintained despite strong evidence to the contrary, often observed in psychiatric conditions.

Amnesia

A deficit in memory caused by brain damage, disease, or psychological trauma, often resulting in an inability to recall past experiences.