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If a Company Borrows Money to Finance an Investment and the Return

Question 43

Multiple Choice

If a company borrows money to finance an investment and the return on the investment turns out to be lower than the cost of borrowing, which of the following statements is true?


A) The shareholders will earn a lower rate of return than if they hadn't borrowed money.
B) The shareholders will earn a higher rate or return than if they hadn't borrowed money.
C) The venture will break even, but not earn a return.
D) The investment will lose more money than if it had not been financed by debt.

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