If a business increases its use of fixed-interest debt while operating income remains unchanged, which measure is most directly affected?
Correct answer: D. Financial leverage
- A. Receivables collection period
- B. Inventory turnover
- C. Gross profit margin
- D. Financial leverage
Explanation
Fixed-interest debt creates compulsory finance costs and therefore increases financial leverage. The other measures relate mainly to operations, pricing or working capital management.
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