Because debt can have the effect of increasing the return to shareholders,the use of debt is sometimes described as financial leverage.

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This statement is true. When a company takes on debt, it can use the borrowed funds to invest in new projects, expand operations, or repurchase shares, which can increase the return to shareholders. This is known as financial leverage, as the company is using borrowed funds to amplify its returns.

Because Debt Can Have the Effect of Increasing the Return