The Increase in Risk to Equity Holders When Financial Leverage

question 38

Multiple Choice

The increase in risk to equity holders when financial leverage is introduced is evidenced by:

• A) higher EPS as EBIT increases.
• B) a higher variability of EPS with debt than all equity.
• C) increased use of homemade leverage.
• D) equivalence value between levered and unlevered firms in the presence of taxes.

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Definitions:

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The phenomenon that the act of observation can change the outcome of what is being observed, often discussed in physics and social sciences.

Conduct Interview

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