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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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