Compared with an All-Equity Financed Firm,one That Uses Debt Will

question 32

Multiple Choice

Compared with an all-equity financed firm,one that uses debt will have

• A) a lower degree of financial leverage.
• B) greater variation in EPS and ROE.
• C) lower risk.
• D) less risk of bankruptcy.
• E) lower profits per share during an economic expansion.

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Definitions:

Net Purchases

The total amount of purchases after subtracting any returns, allowances, and discounts over a specific period.

Purchase Returns

Occurs when a buyer returns merchandise that it had purchased from a supplier, often due to issues like defects or dissatisfaction.

Purchase Discounts

Reductions in the purchase price of goods, often granted by suppliers for early payment.

Profit Margin

The percentage difference between a product's selling price and the cost to produce it, indicating the financial health and profitability of a business.