The maximum interest rate that could be paid on a debt before the leverage becomes unfavorable is referred to as the:
A)Incremental cost of debt
B)Break-even interest rate
C)Favorable interest rate
D)Optimistic interest rate

Question

Quizplus · Accepted Answer

The break-even interest rate is the maximum interest rate that a company can afford to pay on a debt before the leverage becomes unfavorable. Beyond this rate, the cost of borrowing becomes too high, and the company's profits will start to decrease instead of increasing. Therefore, B is the correct choice.

The Maximum Interest Rate That Could Be Paid on a Debt