The less fixed-cost debt (financial leverage) a firm uses, the greater will be its risk and return.

Name: The less fixed-cost debt (financial leverage) a firm uses, the greater will be its risk and return.
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Question

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The statement is incorrect. The less fixed-cost debt a firm uses, the lower its risk because it has less financial leverage. However, it may also lead to lower returns because the firm is not taking advantage of the potential benefits of financial leverage.

The Less Fixed-Cost Debt (Financial Leverage) a Firm Uses, the Greater