Final answer:
A firm with a high degree of combined leverage will experience higher earnings in the expansionary part of the business cycle. Option A is correct..
Step-by-step explanation:
A firm with a high degree of combined leverage will experience higher earnings in the expansionary part of the business cycle. This is because when the economy is expanding, there is higher demand for goods and services, which leads to increased revenue for firms. When a firm has high leverage, it means that it has a higher proportion of debt compared to equity in its capital structure. In an expansionary business cycle, the firm can use the borrowed funds to finance its growth and take advantage of the increased demand.
For example, if a firm has a high degree of combined leverage and decides to invest in new equipment or facilities during an expansionary period, it can generate higher earnings from the increased production and sales. The borrowed funds can be used to finance these investments, and the firm can benefit from the higher demand and prices in the market.Therefore, the statement is True. A firm with a high degree of combined leverage will, other things being equal, experience higher earnings in the expansionary part of the business cycle.