As a firm increases its level of debt relative to its level of equity,the firm is:
A)increasing the fraction of the firm financed with equity.
B)decreasing the fraction of the firm financed with debt.
C)decreasing its leverage.
D)increasing its leverage.
E)becoming unlevered.

Question

Quizplus · Accepted Answer

Increasing the level of debt relative to equity increases the firm's leverage, which is the use of borrowed funds to increase the potential return of an investment. This is because debt is considered a form of leverage, as it allows a firm to invest more with less money down.

As a Firm Increases Its Level of Debt Relative to Its