A property is financed with a 75% loan at 11.5% over 25 years.The property produces an ATIRR on total investment of 7.34% based on a tax rate of 31%.What can be said about the leverage associated with the property?
A)Negative leverage exists
B)Positive leverage exits
C)No leverage exists
D)Can't tell without knowing the ATIRR on equity

Question

Quizplus · Accepted Answer

Negative leverage exists because the cost of borrowing (11.5%) is higher than the return on the total investment (ATIRR of 7.34%).

A Property Is Financed with a 75% Loan at 11