Shweser Qbank: Corp Finance question currently, financing, question, provided, correct

CFA4Techie

Financial leverage would NOT be increased if a firm financed its next project with:

A) common stock.

B) preferred stock.

C) bonds with embedded call options.

That is all information provided with the question.
Unless the firm is currently UN-leveraged, I don't think any of the above answer make sense?

Or does anyone have a better explanation than:


The correct answer was A) common stock.

Financial leverage is the result of financing assets with fixed income securities such as bonds or preferred stock. Each of these alternatives has a required payment component that increases the risk of the firm beyond that arising solely from business risk.