{"id":56184,"date":"2024-04-16T00:40:15","date_gmt":"2024-04-16T00:40:15","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=56184"},"modified":"2024-04-16T00:40:15","modified_gmt":"2024-04-16T00:40:15","slug":"higher-fl-is-related-the-use-of","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/higher-fl-is-related-the-use-of\/","title":{"rendered":"Higher FL is related the use of:"},"content":{"rendered":"<p>\r\n    <!-- Check if it's an AMP page -->\r\n            <!-- Non-AMP version -->\r\n        <div class=\"mcq-container\" data-quiz-id=\"quizState_6a9771ff28eda\">\r\n                                            <div class=\"option\" data-option-key=\"option1\" data-is-correct=\"true\">\r\n                    Higher Equity                <\/div>\r\n                                            <div class=\"option\" data-option-key=\"option2\" data-is-correct=\"false\">\r\n                    Higher Debt                <\/div>\r\n                                            <div class=\"option\" data-option-key=\"option3\" data-is-correct=\"false\">\r\n                    Lower Debt                <\/div>\r\n                                            <div class=\"option\" data-option-key=\"option4\" data-is-correct=\"false\">\r\n                    Variable Cost                <\/div>\r\n                            \r\n            <!-- Feedback messages for non-AMP -->\r\n            <div class=\"feedback\" data-feedback=\"wrong\">Answer is Right!<\/div>\r\n            <div class=\"feedback\" data-feedback=\"right\">Answer is Wrong!<\/div>\r\n        <\/div>\r\n\r\n        <script>\r\n        document.addEventListener('DOMContentLoaded', function () {\r\n            var containers = document.querySelectorAll('.mcq-container');\r\n\r\n            containers.forEach(function(container) {\r\n                var options = container.querySelectorAll('.option');\r\n                var feedbackSelect = container.querySelector('[data-feedback=\"select\"]');\r\n                var feedbackWrong = container.querySelector('[data-feedback=\"wrong\"]');\r\n                var feedbackRight = container.querySelector('[data-feedback=\"right\"]');\r\n\r\n                options.forEach(function(option) {\r\n                    option.addEventListener('click', function() {\r\n                        var selectedOption = option.getAttribute('data-option-key');\r\n                        var isCorrect = option.getAttribute('data-is-correct') === 'true';\r\n\r\n                        \/\/ Remove previous selections\r\n                        options.forEach(function(opt) {\r\n                            opt.classList.remove('correct', 'incorrect');\r\n                        });\r\n\r\n                        \/\/ Add the correct\/incorrect class\r\n                        if (isCorrect) {\r\n                            option.classList.add('correct');\r\n                            feedbackRight.hidden = false;\r\n                            feedbackWrong.hidden = true;\r\n                        } else {\r\n                            option.classList.add('incorrect');\r\n                            feedbackRight.hidden = true;\r\n                            feedbackWrong.hidden = false;\r\n                        }\r\n\r\n                        \/\/ Hide select feedback\r\n                        feedbackSelect.hidden = true;\r\n                    });\r\n                });\r\n            });\r\n        });\r\n        <\/script>\r\n    \r\n    <!--more--><\/p>\n<p>The correct answer is: A. Higher Equity.<\/p>\n<p>Financial leverage (FL) is a measure of how much debt a company uses to finance its assets. A higher FL ratio indicates that a company is using more debt to finance its assets, while a lower FL ratio indicates that a company is using more equity to finance its assets.<\/p>\n<p>Debt is a source of financing that is considered to be more risky than equity. This is because debt holders have a legal claim on a company&#8217;s assets, while equity holders do not. If a company goes bankrupt, debt holders will be paid first, before equity holders.<\/p>\n<p>As a result, companies <div class=\"youtube-subscribe-container\">\r\n        <a href=\"https:\/\/www.youtube.com\/channel\/UCNHT8lW-JmLC68rjBfZhdkg?sub_confirmation=1\" target=\"_blank\" class=\"youtube-subscribe-button\">\r\n            <span class=\"youtube-icon\">\r\n                <svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 576 512\">\r\n                    <path d=\"M549.7 124.1c-6.3-23.7-24.8-42.3-48.3-48.6C458.8 64 288 64 288 64S117.2 64 74.6 75.5c-23.5 6.3-42 24.9-48.3 48.6-11.4 42.9-11.4 132.3-11.4 132.3s0 89.4 11.4 132.3c6.3 23.7 24.8 41.5 48.3 47.8C117.2 448 288 448 288 448s170.8 0 213.4-11.5c23.5-6.3 42-24.2 48.3-47.8 11.4-42.9 11.4-132.3 11.4-132.3s0-89.4-11.4-132.3zm-317.5 213.5V175.2l142.7 81.2-142.7 81.2z\"\/>\r\n                <\/svg>\r\n            <\/span>\r\n            Subscribe on YouTube\r\n        <\/a>\r\n    <\/div> with higher FL ratios are considered to be more risky than companies with lower FL ratios. This is because companies with higher FL ratios are more likely to go bankrupt if they experience financial difficulties.<\/p>\n<p>There are a number of reasons why a company might choose to use more debt to finance its assets. One reason is that debt can be a cheaper source of financing than equity. This is because debt holders are willing to accept a lower return on their investment, because they have a legal claim on a company&#8217;s assets.<\/p>\n<p>Another reason why a company might choose to use more debt to finance its assets is that it can increase the return on equity for shareholders. This is because the return on equity is calculated as net income divided by equity. If a company uses more debt to finance its assets, its net income will increase, and its return on equity will also increase.<\/p>\n<p>However, it is important to note that using more debt also increases the risk of bankruptcy for a company. As a result, companies need to carefully consider the risks and benefits of using debt before making a decision about how to finance their assets.<\/p>\n<p>Here is a brief explanation of each option:<\/p>\n<ul>\n<li>Option A: Higher Equity. Higher equity indicates that a company is using more of its own money to finance its assets. This is considered to be a less risky way to finance assets, because equity holders do not have a legal claim on a company&#8217;s assets.<\/li>\n<li>Option B: Higher Debt. Higher debt indicates that a company is using more debt to finance its assets. This is considered to be a more risky way to finance assets, because debt holders have a legal claim on a company&#8217;s assets.<\/li>\n<li>Option C: Lower Debt. Lower debt indicates that a company is using less debt to finance its assets. This is considered to be a less risky way to finance assets, because debt holders do not have a legal <div class=\"telegram-channel-container\">\r\n        <a href=\"https:\/\/t.me\/pscnotes2025\" target=\"_blank\" class=\"telegram-channel-button\">\r\n            <span class=\"telegram-icon\">\r\n                <svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 496 512\">\r\n                    <path fill=\"white\" d=\"M248,8C111,8,0,119,0,256s111,248,248,248s248-111,248-248S385,8,248,8z M362,177L320,367c-3,14-10,18-20,14l-56-41l-27,26 c-3,3-5,5-10,5l4-63L323,196c5-5-1-7-8-3l-98,62l-42-13c-9-3-10-9,2-14l162-63C351,160,365,164,362,177z\"\/>\r\n                <\/svg>\r\n            <\/span>\r\n            Join Our Telegram Channel\r\n        <\/a>\r\n    <\/div> claim on a company&#8217;s assets.<\/li>\n<li>Option D: Variable Cost. Variable cost is a cost that changes in proportion to the amount of goods or services produced. This is not related to financial leverage.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Subscribe on YouTube<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[945],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v22.2 (Yoast SEO v23.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Higher FL is related the use of:<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/exam.pscnotes.com\/mcq\/higher-fl-is-related-the-use-of\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Higher FL is related the use of:\" \/>\n<meta property=\"og:description\" content=\"Join Our 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