The financial leverage characteristic of long-term debt results in:
A)a reduction of the risk that creditors will not be paid.
B)a magnification of ROE relative to what it would be without long-term debt.
C)a magnification of ROI relative to what it would be without long-term debt.
D)the deductibility, for income tax purposes, of dividends to stockholders.

Question

Quizplus · Accepted Answer

Financial leverage through long-term debt increases the potential return on equity (ROE) by using borrowed funds to generate more earnings, assuming the return on investment exceeds the cost of debt.

The Financial Leverage Characteristic of Long-Term Debt Results In