Negative financial leverage occurs when the:
A)Average net (after tax) interest rate on borrowed funds is less than the company's earnings rate on its assets.
B)Return on assets is more than return on equity.
C)Return on equity is more than return on assets.
D)Operating expenses exceed gross profit.

Question

Quizplus · Accepted Answer

Negative financial leverage occurs when the return on assets is more than the return on equity, indicating that the cost of borrowing is higher than the returns generated from the borrowed funds.

Negative Financial Leverage Occurs When The