The increased variability in earnings per share due to the firm's use of debt is a definition of ____.
A) combined leverage
B) agency risk
C) financial risk
D) operating risk

Question

Quizplus · Accepted Answer

Financial risk refers to the increased variability in earnings per share due to the use of debt. This is because interest expenses can fluctuate with changes in interest rates, which affects the firm's profitability and thus its EPS. Combined leverage refers to the use of both debt and equity financing, while agency risk and operating risk are different types of risks that are not directly related to the use of debt.

The Increased Variability in Earnings Per Share Due to the Firm's