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Interest Expense Creates Magnification of Earnings Through Financial Leverage Because

Question 1

Multiple Choice

Interest expense creates magnification of earnings through financial leverage because:


A) the interest rate is variable.
B) interest accompanies debt financing.
C) the use of interest causes higher earnings.
D) interest costs are cheaper than the required rate of return to equity owners.
E) while earnings available to pay interest rise,earnings to residual owners rise faster.

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