David is trying to decide whether to add capital through investing more of his own money or through borrowing money from the bank.To help him decide,you remind him that ss long as his firm's rate of return on its assets is greater than the cost of the debt,his rate of return on equity will _____ as the firm uses more debt.
A)decrease
B)increase
C)remain the same
D)fluctuate

Question

Quizplus · Accepted Answer

This statement refers to the concept of leverage, which is the use of borrowed money to increase returns on equity. As long as the rate of return on assets is greater than the cost of debt, the return on equity will increase due to the additional leverage. However, it's important to note that too much debt can also increase the risk of the firm, which could potentially decrease the return on equity.

David Is Trying to Decide Whether to Add Capital Through