The correct answer is: A. Financial leverage.
Financial leverage is the use of debt to finance assets. When a company uses debt, it is borrowing money from a lender and agreeing to pay back the loan with interest. This can increase the company’s return on equity (ROE), which is a measure of how profitable the company is. However, it also increases the company’s risk, as it is now obligated to make regular payments to the lender.
Operating leverage is the use of fixed costs to generate revenue. When a company has high fixed costs, it means that it has a lot of costs that do not change even when the company’s sales volume changes. This can be a good thing, as it means that the company can generate a lot of revenue with relatively little effort. However, it also means that the company is more vulnerable to changes in sales volume, as a small decrease in sales can lead to a large decrease in profits.
Money market leverage is the use of short-term debt to finance long-term assets. This can be a risky strategy, as short-term interest rates can fluctuate more than long-term interest rates. This means that the company could end up paying a lot more interest on its debt if interest rates go up.
Stock market leverage is the use of borrowed money to buy stocks. This can be a risky strategy, as the value of stocks can go up or down very quickly. If the value of the stocks goes down, the company could end up owing more money than the stocks are worth.
In conclusion, when a company uses debt fund in its financial structure, it will lead to a change in financial leverage. This is because debt is a form of financing that uses borrowed money, which can increase the company’s risk and return.