What is the main advantage of financial leverage?
A) It reduces the firm's interest expense.
B) It increases the expected return to shareholders.
C) It reduces the amount of risk the firm faces.
D) It provides the firm with more flexible financing.

Question

Quizplus · Accepted Answer

The main advantage of financial leverage is that it increases the expected return to shareholders. This is because leverage allows a company to use debt financing to invest in projects or operations that have the potential to generate higher returns than the cost of debt. As a result, shareholders can benefit from the additional profits generated by the leverage. However, it is important to note that this increased return also comes with increased risk, as leverage amplifies both gains and losses.

What Is the Main Advantage of Financial Leverage