Financial leverage benefits shareholders when the return on ____.
A) assets is greater than the cost of debt
B) equity is greater than the cost of debt
C) investments is less than the weighted cost of capital
D) equity is less than the cost of debt

Question

Quizplus · Accepted Answer

Financial leverage benefits shareholders when the return on assets is greater than the cost of debt because it results in higher returns on equity. Financial leverage amplifies the returns earned on the assets funded by debt, and if the return on those assets exceeds the cost of debt, then the excess return goes to equity shareholders.

Financial Leverage Benefits Shareholders When the Return on ____