Asked by Selia Bennett on Jul 13, 2024
Verified
A firm that employs a relatively large proportion of debt in its capital structure will have a relatively ____ degree of financial leverage.
A) low
B) high
C) insignificant
D) constant
Capital Structure
The composition of a company's funding, including debt, equity, and other financial instruments, which defines how a company finances its overall operations and growth.
Debt
Money that is owed or due to be paid, typically resulting from borrowing funds to be repaid with interest.
Financial Leverage
Financial leverage is the use of borrowed money (debt) to amplify the potential returns from an investment or project.
- Assess the conditions fostering benefits of financial leverage for shareholders.
- Identify the factors affecting capital structure decisions and the optimal use of leverage.
Verified Answer
Learning Objectives
- Assess the conditions fostering benefits of financial leverage for shareholders.
- Identify the factors affecting capital structure decisions and the optimal use of leverage.
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