Generally,as long as a firm's operating income return on its assets in greater than the cost of debt,the owners' return on equity investment will decrease as the firm uses more debt.

Question

Quizplus · Accepted Answer

The statement is incorrect. As a firm uses more debt, its financial risk increases which will result in a higher cost of equity. Therefore, the owners' return on equity investment may increase or decrease depending on the level of financial risk and the cost of equity.

Generally,as Long as a Firm's Operating Income Return on Its