Assignment 1: Risk and the Use of Leverage
Answer with 150-200 words each question.
- What are the implications of a
change in the return on equity with an increase in debt financing?
- What is the relationship between business risk, financial risk, and beta (systematic or market risk).
- Explain how the degree of operating and financial leverage can change the profitability of the firm when sales levels change significantly. Use examples and explain your answers.