A difficulty with increasing a retailer's return on net worth through high financial leverage is the ________.
A) possible loss in sales due to being out-of-stock on desirable merchandise
B) negative effect on net profit due to high inventory levels
C) uncertainty of repayment of interest and debt
D) high costs of stocking inventory

Question

Quizplus · Accepted Answer

Increasing financial leverage means taking on more debt, which in turn means paying back more interest. If the retailer is not able to repay the interest and debt, it could lead to bankruptcy. This uncertainty makes it risky to rely solely on financial leverage to increase return on net worth.

A Difficulty with Increasing a Retailer's Return on Net Worth