If the firm's rate of return on its assets is _____ than the cost of borrowing, then the owners' rate of return on equity will _____ as the firm uses _____ debt.
A) less; decrease; less
B) greater; decrease; more
C) greater; increase; more
D) less; increase; more

Question

Quizplus · Accepted Answer

When the firm's rate of return on its assets is greater than the cost of borrowing, using more debt amplifies the owners' rate of return on equity through financial leverage.

If the Firm's Rate of Return on Its Assets Is