General Studies · Capital Structure and Leverage
A firm is evaluating its capital structure. Which of the following statements correctly reflects the impact of increasing financial leverage?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1It eliminates the effect of fixed operating costs
- 2It decreases the cost of equity due to lower risk
- 3It increases Earnings Per Share (EPS) variability and financial risk✓
- 4It reduces both business risk and financial risk
Correct answer
It increases Earnings Per Share (EPS) variability and financial risk
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