Other Things the Same,when the Interest Rate Rises,the Present Value

question 24

Multiple Choice

Other things the same,when the interest rate rises,the present value of future revenues from investment projects

• A)rises,so investment spending rises.
• B)falls,so investment spending rises.
• C)rises,so investment spending falls.
• D)falls,so investment spending falls.

---

Definitions:

Financial Leverage

The use of borrowed funds to increase a company's investment potential, which can amplify both potential returns and potential losses.

Operating Leverage

Operating leverage refers to the degree to which a company or project can increase operating income by increasing revenue.

Total Leverage

The combination of operating leverage (affecting operating income) and financial leverage (affecting net income), indicating total risk.

Financial Leverage

The use of borrowed funds to finance the acquisition of assets, with the expectation that the profits made will be greater than the interest payable.