By Adding Leverage,the Returns of the Firm Are Split Between

question 57

Multiple Choice

By adding leverage,the returns of the firm are split between debt holders and equity holders,but equity-holder risk increases because:

• A)interest payments can be rolled over.
• B)dividends are paid first.
• C)debt and equity have equal priority.
• D)interest payments have first priority.
• E)interest payments are so high.

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Definitions:

Current Assets

Resources anticipated to be exchanged for cash, disposed of, or utilized within a twelve-month period or over the usual duration of the company's operational cycle, if that period extends beyond a year.

Current Liabilities

Short-term financial obligations due within one year, including debts and accounts payable.

Current Ratio

A financial ratio indicating a firm's capacity to settle short-term debts using its available assets.

Return on Assets

A financial ratio that indicates how profitable a company is relative to its total assets, measuring efficiency in using assets to generate earnings.