By Adding Leverage, the Returns on the Firm Are Split

question 61

True/False

By adding leverage, the returns on the firm are split between debt holders and equity holders, but equity holder risk remains the same because dividends are paid first.

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Definitions:

Operating Activities

Operating activities involve the primary, day-to-day activities that a company engages in to generate revenue, such as sales, provision of services, and production.

Credit Sales

Sales made on credit, where the payment is received after the delivery of the goods or services.

Cash Dividends

Cash dividends are payments made by a company out of its profits to shareholders, distributed in cash, representing a share of the corporation's earnings.

Financing Section

Part of a cash flow statement that shows cash inflows and outflows related to debt, equity, and other financing activities.