Holding all other factors constant, if a firm increases its current liabilities relative to total assets,
A)it increases return and reduces risk.
B)it increases return and increases risk.
C)it reduces return and reduces risk.
D)it reduces return and increases risk.
E)none of above are correct

Question

Quizplus · Accepted Answer

Increasing current liabilities relative to total assets can increase return due to the leverage effect, but it also increases financial risk as the firm has more obligations to meet in the short term.

Holding All Other Factors Constant, If a Firm Increases Its