When a company generates a lower rate of return on its investment in assets than the rate it pays to borrow money,the company wants to use more borrowed funds in its capital structure.

Question

Quizplus · Accepted Answer

This statement is incorrect. When a company generates a lower rate of return on its investment in assets than the rate it pays to borrow money, it should reduce its reliance on borrowed funds and focus on improving its return on assets. Using more borrowed funds in its capital structure would only increase the cost of borrowing and potentially lead to financial distress if the company is unable to repay its debts.

When a Company Generates a Lower Rate of Return on Its