If economic conditions were expected to be favorable, an investor would likely prefer a firm with a low degree of leverage.

Question

Quizplus · Accepted Answer

If economic conditions were expected to be favorable, investors may be more willing to take on risk and therefore may prefer firms with a higher degree of leverage. This is because a highly leveraged firm may be able to generate higher returns in a favorable economic environment, but also poses more risk in an unfavorable economic environment.

If Economic Conditions Were Expected to Be Favorable, an Investor