Financial leverage may benefit shareholders when the:

A) return on capital employed is greater than the after tax cost of debt.
B) return on equity is greater than the cost of debt.
C) return on investments is less than the cost of capital.
D) None of the above

Question

Tyreke' Ingram · Accepted Answer

Final Answer : A, Explanation :  Financial leverage is the use of debt to finance investments or operations. When the return on capital employed (ROCE) is greater than the after-tax cost of debt, the use of debt allows the company to generate greater returns on the shareholder's equity. This is because the cost of debt is lower than the return generated on the investments made. As a result, using debt to finance investments can lead to higher profits and higher returns for shareholders.

Financial leverage may benefit shareholders when the:

A) return on capital employed is greater than the after tax cost of debt.
B) return on equity is greater than the cost of debt.
C) return on investments is less than the cost of capital.
D) None of the above

Definitions

Learning Objectives

Learning Objectives

Related questions

Financial leverage may benefit shareholders when the:A) return on capital employed is greater than the after tax cost of debt.B) return on equity is greater than the cost of debt.C) return on investments is less than the cost of capital.D) None of the above

Definitions

Learning Objectives

Learning Objectives

Related questions

Financial leverage may benefit shareholders when the:

A) return on capital employed is greater than the after tax cost of debt.
B) return on equity is greater than the cost of debt.
C) return on investments is less than the cost of capital.
D) None of the above