The achievement of an increased return on common shares by paying dividends on preferred shares or interest at a rate that is less than the rate of return earned with the assets invested in the corporation by the preferred shareholders or creditors is called
A)Financial leverage
B)Contributed capital
C)No par value
D)Preemptive right
E)Capital gain

Question

Quizplus · Accepted Answer

This is known as financial leverage, as the corporation is using the preferred shareholders' or creditors' assets to generate a higher return for common shareholders.

The Achievement of an Increased Return on Common Shares by Paying