The less fixed-cost debt, or financial leverage, a firm uses, the greater will be its risk and return.

Question

Quizplus · Accepted Answer

The statement is incorrect. The less fixed-cost debt a firm uses, the lower its risk will be. When a firm has less fixed-cost debt, it has less financial leverage and is less vulnerable to bankruptcy or default. However, the return may also be lower as there is less leverage to amplify returns.

The Less Fixed-Cost Debt, or Financial Leverage, a Firm Uses