Financial leverage is determined to a large extent by the firm's:
A) working capital choice.
B) capital budgeting choice.
C) capital structure choice.
D) dividend policy choice.

Question

Quizplus · Accepted Answer

Financial leverage refers to the use of debt financing to increase the potential return on equity. Therefore, the capital structure choice, which refers to the mix of debt and equity a firm uses to finance its operations, is the key determinant of financial leverage. Working capital choice, capital budgeting choice, and dividend policy choice do not have a direct impact on a firm's financial leverage.

Financial Leverage Is Determined to a Large Extent by the Firm's