Which one of the following statements concerning financial leverage is correct?
A)Financial leverage increases profits and decreases losses.
B)Financial leverage has no effect on a firm's return on equity.
C)Financial leverage refers to the use of common stock.
D)Financial leverage magnifies both profits and losses.
E)Increasing financial leverage will always decrease the earnings per share.

Question

Quizplus · Accepted Answer

Financial leverage involves using borrowed funds to increase the potential return on equity, which magnifies both profits and losses depending on the firm's performance.

Which One of the Following Statements Concerning Financial Leverage Is