Leverage refers to the use of borrowed funds to increase a firm's rate of return.

Question

Quizplus · Accepted Answer

The statement is true. Leverage means using borrowed funds to invest in assets or projects that are expected to generate higher returns than the cost of the borrowed funds, thereby increasing the overall rate of return for the firm. However, leverage also magnifies losses if the investments do not perform as expected, which increases risk.

Leverage Refers to the Use of Borrowed Funds to Increase