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The use of Leverage within the capital structure of a firm relates to the use of equity financing of the balance sheet.

a) True
b) False

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Final answer:

Leverage within the capital structure of a firm relates to the use of both equity and debt financing on the balance sheet.

Step-by-step explanation:

The use of leverage within the capital structure of a firm is related to the use of both equity and debt financing on the balance sheet.

Leverage refers to the proportion of debt and equity used to finance a firm's assets. When a firm increases its use of debt financing, it is said to have high leverage, while increasing the use of equity financing results in low leverage.

For example, if a firm raises capital by issuing bonds or borrowing from a bank, it is using debt financing, which increases leverage. On the other hand, if a firm raises capital by issuing new shares of stock, it is using equity financing, which decreases leverage.

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