Final answer:
Managers who are risk-averse and uncertain about the future are likely to minimize combined leverage, which means maintaining low levels of debt and fixed operational costs to reduce the company's risk exposure. This approach is true (option A) as it ensures financial stability and resilience in the face of unpredictable market conditions.
Step-by-step explanation:
The statement that managers who are risk-averse and uncertain about the future would most likely minimize combined leverage is True. Minimizing combined leverage refers to a conservative strategy of keeping both operational and financial leverage low.
Managers aiming to reduce risk will therefore avoid high levels of debt (financial leverage) as well as committing to significant fixed operational costs (operational leverage), especially when future market conditions are unpredictable. By minimizing combined leverage, managers attempt to ensure that the company can withstand adverse economic conditions with less threat to its survival and profitability.
Established firms with proven profitability may attract investment more easily since there is publicly available information regarding the company's performance. However, in the face of uncertainty, risk-averse managers would still prefer to minimize leverage to keep the business on firmer footing.
This approach aligns with the concept of asymmetric risk, where the goal is to mitigate potential negative outcomes even if the probability of such outcomes is low, similar to the rationale behind purchasing insurance.