If the business's rate of return on its assets is _____ than the cost of borrowing, then the owners' rate of return on equity will _____ as the business uses _____ debt.
A)less, decrease, less
B)greater, decrease, more
C)greater, increase, more
D)less, increase, more

Question

Quizplus · Accepted Answer

If the business's rate of return on its assets is greater than the cost of borrowing, then the owners' rate of return on equity will increase as the business uses more debt. This is because the business is effectively using leverage to amplify returns on equity.

If the Business's Rate of Return on Its Assets Is