The more fixed cost financing a firm has in its capital structure, the greater is its financial leverage and risk.

Question

Quizplus · Accepted Answer

Financial leverage refers to the degree to which a company uses fixed costs in its capital structure, such as debt or preferred shares. As the amount of fixed cost financing increases in a company's capital structure, its financial leverage also increases, which can amplify both gains and losses. This increased financial leverage also increases the company's risk. Therefore, the statement is true.

The More Fixed Cost Financing a Firm Has in Its