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

Question

Quizplus · Accepted Answer

Fixed cost financing includes debt, which increases financial leverage and risk for a firm. This is because the firm must make fixed interest payments regardless of its earnings, which can put it in a vulnerable position during economic downturns or unexpected events. As a result, the more fixed cost financing a firm has, the greater its financial leverage and risk.

The More Fixed Cost Financing a Firm Has in Its