__________is a term used to describe the magnification of risk and return introduced through the useof fixed cost financing such as preferred stock and long-term debt.
A) Financial leverage
B) The acid-test
C) Fixed-payment coverage
D) Operating leverage

Question

Quizplus · Accepted Answer

Financial leverage refers to the use of fixed-cost financing, such as long-term debt and preferred stock, to increase potential returns to shareholders. However, this also introduces more risk as fixed costs must be paid regardless of a company's level of profitability. Therefore, the use of financial leverage can magnify both the potential returns and risks associated with an investment.

__________Is a Term Used to Describe the Magnification of Risk