Financial Leverage arises due to ____________.

Fixed cost of production

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Variable cost

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Interest cost

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None of the above

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Solution

The correct option is C Interest cost
Financial leverage depicts the amount of debts that an entity uses to finance the buying additional assets. Its basically the proportion of debt in the capital structure of the company. Higher the degree of financial leverage means the company is using more debts.
Financial leverage arises due to interest cost of debts. High degree of leverage indicates higher financial risk.

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Similar questions

Financial leverage is called favourable if

(a) Return on investment is lower than the cost of debt

(b) Rol is higher than the cost of debt

(d) If the degree of existing financial leverage is low

Financial leverage is called favourable if

(a) Return on investment is lower than the cost of debt

(b) ROI is higher than the cost of debt

(d) If the degree of existing financial leverage is low

Financial leverage is a proportion of debt in an overall capital. State whether true or false.

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