To maximize the benefits of using financial leverage, a firm should
A) strive to minimize their cost of capital.
B) avoid securing funds through long-term debt financing.
C) limit their investments to projects with minimum risk levels.
D) incorporate in states with relatively low tax rates.

Question

Quizplus · Accepted Answer

Financial leverage involves raising needed funds through borrowing to increase a firm's rate of return. By reducing the cost of acquiring funds, the firm positions itself to earn a rate of return greater than the interest costs associated with borrowing.

To Maximize the Benefits of Using Financial Leverage, a Firm