Question

Which of the following is true about the leveraging effect? Under economic growth conditions, firms with relatively low financial leverage will have higher expected returns. Under economic growth conditions, firms with relatively more financial leverage will have higher expected returns.

Answer 1

Answer: Under economic growth conditions, firms with relatively more financial leverage will have higher expected returns.

Explanation:

Under economic growth conditions, firms and organizations with more financial muscle usually have higher expected returns.

This Growth, is as a result of the change in the company's earnings, revenue, GDP or some other sources over a period of time (usually a year) to the next. This growth are usually not affected by inflation.