It is not optimal to borrow any further funds when
A) the average borrowing costs start to equal or exceed the ROA.
B) the company's net profit margin falls below the average borrowing costs.
C) the company's debt-to-equity ratio exceeds 50%.
D) the average borrowing costs start to equal or exceed the ROE.

Question

Quizplus · Accepted Answer

When the average borrowing costs start to equal or exceed the ROA, it indicates that the cost of borrowing is not being effectively covered by the returns generated from the assets, making further borrowing suboptimal.

It Is Not Optimal to Borrow Any Further Funds When