Multiple choice

Directions: Choose the correct option for the given question.

Financial leverage occurs when

  1. A firm borrows fund

  2. A firm financing to the other

  3. A firm merge with other

  4. A firm dissolved

  5. None of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Financial leverage occurs when a firm uses borrowed funds (debt) to finance its operations or investments. The use of debt magnifies potential returns but also increases risk. Options B, C, and D describe different scenarios (financing others, mergers, dissolution) but not leverage.

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