You Find That a Firm That Uses Debt Has a Compound

question 6

Multiple Choice

You find that a firm that uses debt has a compound leverage factor less than 1. This tells you that ________.

• A) the firm's use of financial leverage is positively contributing to ROE
• B) the firm's use of financial leverage is negatively contributing to ROE
• C) the firm's use of operating leverage is positively contributing to ROE
• D) the firm's use of operating leverage is negatively contributing to ROE

---

Definitions:

New York Stock Exchange

One of the largest stock exchanges in the world, located in New York City, where stocks are bought and sold.

Relative Purchasing Power Parity

An economic theory that states the rate of exchange between two currencies will adjust to reflect changes in the price levels of the two countries.

Absolute Exchange Rate

An exchange rate that directly compares the purchasing power of two different currencies.

Inflation Rates

The rate at which the general level of prices for goods and services is rising, concurrently eroding purchasing power, usually expressed as a percentage.