If preferred stock paid a dividend that varied with the firm's earnings, preferred stock would not be a source of financial leverage.

Question

Quizplus · Accepted Answer

Financial leverage refers to the use of debt to increase the returns on equity for the shareholders. Preferred stock with a variable dividend based on earnings would not contribute to debt financing and therefore would not be considered a source of financial leverage.

If Preferred Stock Paid a Dividend That Varied with the Firm's