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Question
The degree of financial leverage for Aries Inc. is 3.0, and the degree of financial leverage for Common Capital Corporation is 6.2. According to this information, which firm is considered to have greater overall (total) risk?
a. Aries Inc.
b. Common Capital Corporation.
c. The degree of financial leverage is a measure of financial risk, so the only conclusion that can be made with the information given is that Common Capital Corporation has greater financial risk than Aries Inc.⎯ we cannot tell which firm has greater total risk.
d. To determine which firm has the greater total risk, we need to know the financial breakeven point of each firm.
e. None of the above is a correct answer.
Answer
This answer is hidden. It contains 1 characters.
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