1. A firms use of more debt financing creates more risk to owners and thus increases the cost of equity.

True or False

2. What is a firm doing if it is using financial leverage?

A. Marketable securities is part of its assets structure.

B. It is using common stock as part of its capital structure.

C. It is using debt or preferred stock as part of its capital structure.

D. Accounts receivable is part of its asset structure.

3. Which of the following is most likely to cause a firm to use more financial leverage?

A. the current owners concern for maintaining control of a healthy firm

B. concern for the firms Moodys and S & P bond ratings

C. concern for maintaining excess borrowing capacity

D. managements concern for their own risk