If a firm earns 10% return on funds they borrowed at 15% interest, the owners of the firm realize a benefit from using leverage.

Name: If a firm earns 10% return on funds they borrowed at 15% interest, the owners of the firm realize a benefit from using leverage.
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Leverage refers to the use of borrowed funds to increase the firm's rate of return. Borrowing at 15% interest (cost of capital) and using those funds to earn 10% decreases the return on investment for the firm.

If a Firm Earns 10% Return on Funds They Borrowed