The main disadvantage of financial leverage is that:
A) it increases the taxes of firms that use it.
B) it requires owners to invest more of their own money.
C) it reduces the financial return to stockholders' investment when times are bad.
D) it protects firms from predatory lending practices by financial institutions.

Question

Quizplus · Accepted Answer

Financial leverage amplifies both gains and losses. When times are bad, the cost of debt remains, reducing the financial return to stockholders.

The Main Disadvantage of Financial Leverage Is That