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    Question

    A company’s debt-to-equity ratio is 3:1, and it faces

    a high interest burden. What does this suggest about the financial structure?
    A High operating risk Correct Answer Incorrect Answer
    B Low gearing Correct Answer Incorrect Answer
    C High financial leverage Correct Answer Incorrect Answer
    D Low risk of default Correct Answer Incorrect Answer

    Solution

    A 3:1 D/E ratio implies reliance on debt, leading to high financial leverage and higher interest burden.

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