The term _____ describes financing with debt and preferred stock to increase the potential return to the residual common shareholders' equity.
A)trading on the debt
B)trading on the equity
C)financial leverage
D)equity financing
E)none of the above

Question

Quizplus · Accepted Answer

Financial leverage refers to the use of debt and preferred stock to enhance the return on equity for common shareholders. Trading on the debt (A) refers to exploiting variations in the price of debt securities, while trading on the equity (B) refers to exploiting variations in the price of a company's stock. Equity financing (D) refers to raising funds by issuing new shares of stock, which dilutes the ownership and control of existing shareholders. Therefore, the best answer is C.

The Term _____ Describes Financing with Debt and Preferred Stock