________ is a term used to describe the magnification of risk and return introduced through the use of fixed cost financing such as preferred stock and long-term debt.
A) Financial leverage
B) Operating leverage
C) Fixed-payment coverage
D) The acid-test

Question

Quizplus · Accepted Answer

Financial leverage is the term used to describe the magnification of risk and return introduced through the use of fixed cost financing such as preferred stock and long-term debt. It refers to the use of debt and other fixed-payment sources of funds to increase the potential return on equity. Operating leverage, on the other hand, refers to the extent to which fixed costs are used in a company's operations, while fixed-payment coverage and the acid-test are not relevant to this concept.

________ Is a Term Used to Describe the Magnification of Risk