A firm has a compound leverage factor greater than 1 indicates that ______.
A) this firm has no interest payments
B) this firm uses less debt as a percentage of financing
C) its interest payments are equal to the firm's pretax profits
D) its debt has a positive contribution to the firm's ROA

Question

Quizplus · Accepted Answer

A compound leverage factor greater than 1 indicates that the use of debt has a positive contribution to the firm's return on assets (ROA). This means that the firm is generating greater returns on its assets than the cost of borrowing, resulting in a positive impact on the firm's overall profitability.

A Firm Has a Compound Leverage Factor Greater Than 1