Q227
The use of preference share capital as against debt finance.
A.
Reduces DFL
AnswerB.
Increases DFL
C.
Increases financial risk
D.
Both a and b
Answer: Option A
Solution
Answer: Option A
Solution:
The use of preference share capital as against debt finance reduces DFL. A degree of financial leverage (DFL) is a leverage ratio that measures the sensitivity of a company's earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure.