A firm's risk level will fluctuate as its ________ changes.
A)financial leverage
B)debt-to-equity
C)degree of financial leverage
D)All of the above.

Question

Quizplus · Accepted Answer

All of the above factors can affect a firm's risk level. Financial leverage (the use of debt financing) can increase a firm's risk due to the added interest expenses and the potential for default. Debt-to-equity ratio, which measures a firm's level of debt relative to its equity, can also impact risk as higher levels of debt can increase financial distress risk. And finally, the degree of financial leverage, which measures the sensitivity of a firm's earnings per share to changes in its earnings before interest and taxes, can also impact a firm's risk level. Therefore, all of these factors are important to consider when evaluating a firm's risk.

A Firm's Risk Level Will Fluctuate as Its ________ Changes