Financial leverage is positive when a company borrows funds at a low interest rate and invests those funds at a higher interest rate.That is,positive financial leverage uses borrowed funds to increase the return to shareholders.

Question

Quizplus · Accepted Answer

This statement accurately describes positive financial leverage, in which a company earns a higher return on investment (ROI) with borrowed funds than the cost of the borrowed funds (interest rate), resulting in an increase in shareholders' earnings.

Financial Leverage Is Positive When a Company Borrows Funds at a Low