Successful use of financial leverage may
1) increase the firm's earnings per share
2) decrease the firm's earnings per share
3) increase investors' return on their funds
4) decrease investors' return on their funds
A)1 and 3
B)1 and 4
C)2 and 3
D)2 and 4

Question

Successful use of financial leverage may​
1) increase the firm's earnings per share
2) decrease the firm's earnings per share
3) increase investors' return on their funds
4) decrease investors' return on their funds
A)​1 and 3
B)​1 and 4
C)​2 and 3
D)​2 and 4

Quizplus · Accepted Answer

Successful use of financial leverage can increase the firm's earnings per share by using borrowed funds to invest in projects that generate higher returns than the interest paid on the debt. This can also increase investors' return on their funds through higher earnings per share and potential capital gains on the stock. It is unlikely that financial leverage would decrease earnings per share or investors' return on their funds if used successfully.

Successful Use of Financial Leverage May​

Successful Use of Financial Leverage May