Financial managers at Epic Electronics have always had a conservative attitude toward long-term financing. In particular, they are interested in keeping risk to a minimum. This philosophy suggests that managers at Epic consider the extensive use of leverage an attractive financial strategy.

Question

Quizplus · Accepted Answer

Leverage is the use of borrowing to increase a firm's rate of return. One of the drawbacks of leverage is that reliance on debt increases the financial risk of the firm. If the firm's earnings on the borrowed funds were less than the interest the firm is required to pay, the rate of return to the owners would decline. This type of strategy is not likely to appeal to the conservative financial managers at Epic.

Financial Managers at Epic Electronics Have Always Had a Conservative