1. A firm’s business risk is largely determined by the financial characteristics of its industry, especially by the amount of debt the average firm in the industry uses.

a. True

b. False

2. Financial risk refers to the extra risk stockholders bear as a result of a firm’s use of debt as compared with their risk if the firm had used no debt.

a. True

b. False

3. Other things held constant, an increase in financial leverage will increase a firm’s market (or systematic) risk as measured by its beta coefficient.

a. True

b. False