A danger to a retailer with a very high financial leverage is _____.
A)the reduction in inventory valuation
B)the reduction in return on net worth
C)that high debt service must be paid
D)high variable cost levels

Question

Quizplus · Accepted Answer

A retailer with a very high financial leverage has taken on a significant amount of debt, which means they must make high debt service payments. This can be dangerous because it puts the retailer at risk of defaulting on their loans if they are unable to generate enough revenue to cover their debt obligations. In addition, lenders may become concerned about the retailer's ability to repay the debt, which could lead to higher interest rates and tighter lending requirements. While the reduction in inventory valuation and return on net worth can be negative consequences of high financial leverage, they are not as significant as the need to make large debt service payments. High variable cost levels are also a concern for retailers, but they are not directly related to financial leverage.

A Danger to a Retailer with a Very High Financial