If a Firm Increases Its Use of Financial Leverage,then What

question 18

Multiple Choice

If a firm increases its use of financial leverage,then what would we generally expect for the shareholders of that firm to

• A) lower their demand for return on their investment.
• B) remain indifferent with respect to their return on investment.
• C) increase their demand for return on their investment.
• D) it is not possible to tell what will happen.

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Definitions:

Maturity Value

Maturity value is the amount payable to an investment's holder at its maturity date, including the principal and any remaining interest.

Note

A written agreement acknowledging a debt and promising repayment.

Direct Write-off

A method of accounting for bad debts where uncollectible accounts receivable are written off directly against income at the time they are deemed nonrecoverable.

Allowance Methods

Accounting techniques used to anticipate and account for future loan losses by establishing an allowance for doubtful accounts.