Which of the following statements is correct? Select one: a. Leverage reduces risk of debt even...
Which of the following statements is correct?
Select one:
a. Leverage reduces risk of debt even when there is no risk of default
b. Leverage increases risk of debt even when there is no risk of default
c. Leverage increases risk of equity even when there is no risk of default
d. Leverage reduces risk of equity even when there is no risk of default
Homework Answers
C.Leverage increases risk of equity even when there is no risk of default.
Since leverage increases the debt, which is to be repaid, it increases the risk of equity, which inturn increases the required return.
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