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    Question

    The term “leverage” in financial management

    typically refers to:
    A Use of equity only to fund operations Correct Answer Incorrect Answer
    B Use of fixed costs in operations Correct Answer Incorrect Answer
    C Use of debt to increase returns on equity Correct Answer Incorrect Answer
    D Use of retained earnings for investment Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    Leverage amplifies returns using borrowed funds, assuming the return on investment exceeds the cost of debt.

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