As a firm increases its level of debt relative to its level of equity, the firm is decreasing its leverage.

Question

Quizplus · Accepted Answer

As a firm increases its level of debt relative to its level of equity, it is actually increasing its leverage, not decreasing it. This is because debt is a form of leverage, as it allows a firm to use borrowed funds to invest and potentially earn higher returns. However, increased leverage also comes with increased risk, as the firm will have to pay interest on its debt and may struggle to make payments if its investments don't perform well.

As a Firm Increases Its Level of Debt Relative to Its