If a firm's earnings should drop below the interest cost of borrowed money, the return on owners' equity will increase.

Question

Quizplus · Accepted Answer

If a firm's earnings drop below the interest cost of borrowed money, it means that the firm is not generating enough profit to cover its debt obligations. This can lead to financial distress and potentially bankruptcy, which would hurt the return on owners' equity. Therefore, the statement is false.

If a Firm's Earnings Should Drop Below the Interest Cost