Consider the following environmental and firm characteristics and determine their effect on a firm's business or financial risk. Firms operating in more price-competitive industries, or exhibiting lower levels of market power, generally exhibit lower levels of business risk, all other things being equal. This statement is: True False The use of financial leverage, or fixed-cost sources of capital, involves a trade-off between its effect on the firm's shareholders and its effect on the riskiness of the firm. Indicate whether statement 1, statement 2, or both statements are correct, or neither statement is correct. When its earnings are increasing, the use of greater levels of debt capital in a firm's capital structure magnifies the positive return earned by the firm's shareholders beyond that earned by the shareholders of an otherwise identical unlevered firm. One result associated with a firm's use of increased financial leverage is an increase in the firm's risk of insolvency. Both statements are correct. Only statement 1 is correct. Only statement 2 is correct. Neither statement is correct