Leverage enables a company to earn a higher return using debt than without debt.

Question

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Leverage allows a company to borrow money to invest in projects that generate a higher return than the interest payments on the debt. Therefore, using debt can increase the company's overall return on equity. However, leverage also increases the risk of financial distress, as the company must make interest payments regardless of its profitability.

Leverage Enables a Company to Earn a Higher Return Using