A company that earns a rate of return on its investments lower than the interest rate on its debt is said to have
A)unfavourable financial leverage.
B)a sub-optimal capital structure.
C)favourable financial leverage.
D)negative financial leverage.

Question

Quizplus · Accepted Answer

When a company's return on investments is lower than the interest rate on its debt, it results in unfavourable financial leverage, as the cost of borrowing exceeds the returns generated.

A Company That Earns a Rate of Return on Its