Which one of the following statements is correct?
A) The lower the level of a company's debt, the higher the company's leverage.
B) The lower the level of a company's debt, the lower the company's equity multiplier.
C) The lower the level of a company's debt, the higher the company's equity multiplier.
D) The tax benefit from using debt financing reduces a company's risk.

Question

Quizplus · Accepted Answer

The equity multiplier is a measure of financial leverage, calculated as total assets divided by total equity. Lower debt levels mean less leverage, resulting in a lower equity multiplier.

Which One of the Following Statements Is Correct