The Less Fixed-Cost Debt (Financial Leverage) a Firm Uses, the Greater

question 53

True/False

The less fixed-cost debt (financial leverage) a firm uses, the greater will be its risk and return.

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Definitions:

Operating Income

A measure of a company's profitability from its regular business operations, excluding income and expenses from unusual or non-operational activities.

Absorption Costing

An accounting method that includes all manufacturing costs (both fixed and variable) in the cost of a product.

Operating Income

Earnings from a company's core business operations, excluding expenses and revenues from investments and other non-operational activities.

Variable Costing

An accounting method that only allocates variable production costs to products, excluding fixed costs.