Successful use of financial leverage requires a firm to
A) negotiate with lenders to establish a line of credit.
B) establish and operate a venture capital organization to minimize the use of equity financing.
C) register with the local government commission that administers market leverage.
D) earn a higher return on its investments than the interest rate it pays to acquire funds.

Question

Quizplus · Accepted Answer

The goal of leverage is to use borrowed funds to increase a firm's rate of return. This can be accomplished by investing borrowed funds at a higher rate of return than the cost of acquiring those funds.

Successful Use of Financial Leverage Requires a Firm to