A corporation has concluded that its financial risk premium is too high. In order to decrease this, the firm can

Question

Quizplus · Accepted Answer

Increasing the proportion of common stock equity will decrease financial risk as it reduces the company's financial leverage, which is the extent to which a company is financed by debt versus equity. A higher proportion of equity in the capital structure leads to a lower cost of capital, which can lower the financial risk premium. Therefore, option D is the best choice for decreasing the financial risk premium.

A Corporation Has Concluded That Its Financial Risk Premium Is