1. Which of the following is true of financial leverage?
a. It affects the sensitivity of net income to changes in sales.
b. a and b
c. It is increased by an increase in operating leverage.
d. It arises from the use of debt financing.
2. The cost of capital can be described best as the:
a. rate a firm pays for the use of invested funds.
b. the minimum return required of capital budgeting projects that are about as risky as the firm.
c. Either of the above
d. None of the above