The use of financial leverage will be detrimental to a firm's ROE if the:
A)Firm has no long-term debt
B)Firm's profit margin does not exceed its asset turnover
C)Interest expense exceeds the tax liability
D)Interest rate on debt exceeds the firm's ROA

Question

Quizplus · Accepted Answer

Financial leverage is detrimental to a firm's ROE when the cost of debt (interest rate) is higher than the return generated from the assets (ROA), as it reduces the overall profitability available to equity holders.

The Use of Financial Leverage Will Be Detrimental to a Firm's