Using more debt can increase the owner's return on equity but it also increases risk.

Question

Quizplus · Accepted Answer

Using more debt can increase the owner's return on equity by leverage, where the business uses borrowed money to increase returns on the owner's equity investment. However, it also increases the risk because the business will have to make interest payments and may struggle to meet its debt obligations if its income decreases. Thus, while debt can boost returns on equity, it also amplifies the financial risks the business faces.

Using More Debt Can Increase the Owner's Return on Equity