________ is the ability of a firm to finance an investment through borrowed funds.
A) Liquidity
B) Leverage
C) Solvency
D) Profitability
E) Activity

Question

Quizplus · Accepted Answer

Leverage refers to the use of borrowed funds (debt) to finance investments. It allows a firm to increase its return on equity by taking advantage of the tax benefits of interest payments and magnifying the gains (or losses) on its investments. Liquidity refers to the ability of a firm to meet its short-term obligations, solvency refers to its ability to meet its long-term obligations, profitability refers to its ability to generate earnings, and activity refers to the efficiency of its operations.

________ Is the Ability of a Firm to Finance an Investment