Chapter 14, Section 14-6, SelfTest, Exercise 07
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Why do wide variations in the use of financial leverage occur across industries and among individual firms in each industry?

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Business risk and financial risk tend to be different from one firm to another.


Firms from different industries will most likely have different business models, hence, the use of debt will differ significantly. The use of different levels of debt will be dependent on the effects of debt financing to the value of the firm.

Verified Answer

Variations in the use of financial leverage will be a result of each firm's unique situation and unique business model.

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