The use of leverage by a firm
A)increases the variability of EBIT.
B)replaces all use of homemade leverage.
C)increases shareholder risk.
D)affects EBIT more than net income.
E)increases EPS at low levels of income.

Question

Quizplus · Accepted Answer

Leverage increases shareholder risk because it amplifies the potential returns and losses, making the firm's earnings more volatile and increasing the financial risk to shareholders.

The Use of Leverage by a Firm