At Her Company's Annual Party, Sally Overheard One of the Executives

Multiple Choice

At her company's annual party, Sally overheard one of the executives mention that the company is highly leveraged. Sally, who recently bought 300 shares of the company's stock, is very interested in this bit of information because she knows that leverage:

A) will protect her return on investment if the company experiences a downturn in sales.
B) will increase the amount of taxes she will have to pay on her dividends.
C) means that the firm is financed with a sizeable amount of debt, which can increase the return on her equity investment.
D) is a time­proven way to both improve the expected return on equity and reduce the financial risk to stockholders.