The textbook's coverage of leverage explained its use will:
A)increase the expected return on equity but not the risk of these returns
B)reduce the risk but not the expected return on equity
C)increase the return on equity as long as the return on assets is less than the cost of debt
D)reduce the risk of bankruptcy.
E)None of these.

Question

Quizplus · Accepted Answer

Leverage increases both the expected return on equity and the risk of these returns. It does not inherently reduce risk or the risk of bankruptcy, and it increases return on equity when the return on assets is greater than the cost of debt, not less.

The Textbook's Coverage of Leverage Explained Its Use Will