The use of fixed-cost financing is referred to as ______________. Therefore, it
ID: 2736313 • Letter: T
Question
The use of fixed-cost financing is referred to as ______________. Therefore, it is a direct function of the ratio of _______________ to EBIT. The use of fixed cost sources of funds, such as ________ and _____________ affect a firm's financial risk.
Word bank: Capital, Capital gain, Capital rationing, Cash outflows, Cheapest, Cost of capital, Debt, Equity, Externalities, Financial- leverage, Fluctuating, Higher, Hybrid, Incremental CFs, Independent, Interest expense, Investor's, IRR, Most expensive, Mutually exclusive, Negative, New stock, NPV rule, Open- market, Operating leverage, Opportunity, Overvalued, Positive, Preferred stock, Shareholder's, Sunk, WACC
Explanation / Answer
The use of fixed-cost financing is referred to as Financial- leverage. Therefore, it is a direct function of the ratio of WACC to EBIT. The use of fixed cost sources of funds, such as Debt and Preferred stock affect a firm's financial risk.
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