Part I: say true or false ( 1.5 each): Write true if the statement is correct. If not write false.

Question

1. Generally, increase in leverage result in incrased in return and risk.
2. Operating leverage is the relation ship between af \( \pi \mathrm{I} \) sales reverue and its financial expense.
3. Financial risk refers to ex ra risk stockholder bear as a resu't of the use of debt as compared with the risk they would bear if no debt were us d
4. A firm capital structure can never affect its free cash flow.
5. Pecking order theory is state that the optinal capital structure is tr lec foctween i.iercst tax shield and cost of financial distress

Answer 1

1. True
2. False
3. True
4. False
5. False