Debt $($or leverage$)$ management ratios

Companies have the opportunity to use varying amounts of different sources of financing, including internal and external sources, to acquire their

assets, debt $($borrowed$)$ funds, and equity funds.

Aunt Dottie's Linen Inc. reported no long$-$term debt in its most recent balance sheet. A company with no debt on its books is referred to as:

A company with no leverage, or an unleveraged company

A company with leverage, or a leveraged company

Which of the following is true about the leveraging effect?

Under economic growth conditions, firms with relatively low leverage will have higher expected returns.

Under economic growth conditions, firms with relatively more leverage will have higher expected returns.