Many companies use high levels of debt to finance their assets because financial leverage benefits are provided to investors when return on assets exceeds the after-tax cost of interest.

Question

Quizplus · Accepted Answer

This statement is true. Financial leverage can magnify returns for investors if the return on assets is greater than the after-tax cost of the debt. However, it also increases the risk of bankruptcy if the company's earnings cannot cover its interest payments.

Many Companies Use High Levels of Debt to Finance Their