Using borrowed funds in an attempt to earn a return greater than the cost of borrowing is referred to as:
A) equity funding.
B) capital budgeting.
C) gearing or leverage.
D) overdraft financing.

Question

Quizplus · Accepted Answer

Gearing or leverage refers to the practice of using borrowed funds to invest in assets or projects with the aim of generating a higher return than the cost of borrowing. This strategy can increase potential profits, but also comes with additional risks as investors must not only pay back the borrowed funds but also cover interest and fees. The other options listed, such as equity funding, capital budgeting, and overdraft financing, do not accurately describe this concept.

Using Borrowed Funds in an Attempt to Earn a Return