The chapter on financial leverage, as well as the discussion in class, used “ris
ID: 2736176 • Letter: T
Question
The chapter on financial leverage, as well as the discussion in class, used “risk units” to illustrate what about financial leverage?
That debt financing creates a tax shield and therefore lowers firm risk
That for firms with leverage, the higher the EBIT, the higher is firm risk
That the risk of the firm’s assets cannot be changed by shifts in financial leverage
That debt is risk free
That firm value is maximized where the cost of capital is minimized
a.That debt financing creates a tax shield and therefore lowers firm risk
b.That for firms with leverage, the higher the EBIT, the higher is firm risk
c.That the risk of the firm’s assets cannot be changed by shifts in financial leverage
d.That debt is risk free
e.That firm value is maximized where the cost of capital is minimized
Explanation / Answer
option b is correct
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