The extent to which a ﬁrm relies on debt is referred to as:
A) Homemade leverage.
B) The target ratio.
C) Business leverage.
D) Proposition I.
E) Financial leverage.

Question

Quizplus · Accepted Answer

The extent to which a firm relies on debt is referred to as financial leverage. Financial leverage refers to the use of borrowed funds (debt) to increase the returns to equity holders. The higher the proportion of debt a firm uses relative to equity, the higher the financial leverage.

The Extent to Which a ﬁRm Relies on Debt Is