Positive financial leverage occurs when a company ________.
A)has more current assets than current liabilities
B)has a current ratio greater than 1.0 to 1
C)earns more with the money it borrows than it has to pay to borrow that money
D)has a high debt-to-equity ratio

Question

Quizplus · Accepted Answer

Positive financial leverage occurs when a company earns more with the money it borrows than it has to pay to borrow that money. This allows the company to generate more income and profits than it would have been able to without borrowing, resulting in increased shareholder value. Therefore, option C is the correct choice. Options A, B, and D are incorrect as they do not relate to the concept of positive financial leverage.

Positive Financial Leverage Occurs When a Company ________