Financial leverage:
A)increases as the net working capital increases.
B)is equal to the market value of a firm divided by the firm's book value.
C)is inversely related to the level of debt.
D)is the ratio of a firm's revenues to its fixed expenses.
E)increases the potential return to the shareholders.

Question

Quizplus · Accepted Answer

Financial leverage increases the potential return to shareholders by using debt to finance investments, which can amplify profits if the investments yield a higher return than the cost of debt.

Financial Leverage