We Use the Term Leverage to Describe the Use of Debt

question 110

Multiple Choice

We use the term leverage to describe the use of debt in the firm' capital structure because:

• A)it magnifies the potential expected return to equity and the variability of that expected return.
• B)it magnifies the risk of bankruptcy.
• C)it magnifies earnings per share.
• D)none of these.

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Definitions:

Contribution

An individual's or group's act of giving or supplying something (e.g., time, money, effort) towards a common goal or cause.

Wealth Of Knowledge

A large store of information, understanding, and wisdom that an individual or an organization possesses, often seen as a valuable resource.

Career Plateau

A stage in a person's career when there is a minimal chance for further upward movement in rank.

Maintenance Stage

A phase in the development of systems or relationships where effort is focused on sustaining efficiency and effectiveness rather than growth.