Assignment 1: Risk and the Use of Leverage

General Questions:

Respond to the following questions thoroughly, in 150–300 words for each question. Use your textbook as your first and major reference.

1. What are the implications of a change in the return on equity with an increase in debt financing?
2. What is the relationship between business risk, financial risk, and beta (systematic or market risk).
3. 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.

Deliverables:

1. Answer the General Questions and post your responses to the Discussion Area by Saturday, December 13, 2014. Be sure to explain your answers thoroughly, use specific examples, and cite your sources.
2. Participate in the discussions, responding to at least two other responses.