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Question

The greater the proportion of long term debt in the capital structure of the firm __________________.

A
The greater the financial risk
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B
The lower the financial risk
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C
The greater the sales
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D
The greater the profits
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Solution

The correct option is B The greater the financial risk
A company's proportion of short- and long-term debt is considered when analyzing capital structure. ... Usually, a company that is heavily financed by debt has a more aggressive capital structure and therefore poses greater risk to investors. This risk, however, may be the primary source of the firm's growth.


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