If earnings reflect a return greater than the cost of debt,then ________.
A)the more debt the company has sold,the worse off the shareholders are
B)the less debt the company has sold,the better off the shareholders are
C)the more debt the company has sold,the better off the shareholders are
D)the more debt the company has bought,the better off the shareholders are

Question

Quizplus · Accepted Answer

If the earnings of a company are greater than the cost of debt, it means that the company is generating enough profits to cover the cost of the debt. In such a scenario, issuing more debt can help the company further increase its profits through investment or expansion, which can benefit the shareholders. This is because the cost of debt is lower than the return on investment, and therefore, the more debt a company issues, the better off the shareholders can be. So, choice C is the correct answer.

If Earnings Reflect a Return Greater Than the Cost of Debt,then