Financial Leverage: I.increases Expected ROE but Does Not Affect Its Variability.II.increases Breakeven

question 4

Multiple Choice

Financial leverage:
i.increases expected ROE but does not affect its variability.II.increases breakeven sales,like operating leverage,but increases the rate of earnings per share growth once breakeven is achieved.III.is a fundamental financial variable affecting sustainable growth.IV.increases expected return and risk to owners.

• A) I and II only
• B) I and III only
• C) II and IV only
• D) II,III,and IV only
• E) I,II,III,and IV

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Definitions:

Profits Test

A criterion used to evaluate the profitability of a business or investment, often assessing whether revenues exceed costs or expenses to determine financial viability.

Assets Test

A financial measure used to determine eligibility for certain government benefits based on the value of one's assets.

Profit Test

A determination to assess the viability and profitability of a project or investment by comparing costs against potential benefits.

Reportable Segments

Parts of a business that have separate financial information available, which can be evaluated regularly by the company's chief operating decision-maker in deciding how to allocate resources and in assessing performance.