The advantages of financial leverage accrue primarily to
A)management.
B)stockholders.
C)the government.
D)creditors.

Question

Quizplus · Accepted Answer

The advantages of financial leverage refer to the magnified profits that stockholders can earn from the use of borrowed funds, which results in increased returns on equity. While management may benefit from higher profits and creditor financing, the primary beneficiaries of financial leverage are the stockholders who own the firm. The government may benefit from taxes and regulations related to financial leverage, but this is not a direct advantage. Creditors benefit by receiving interest payments on the funds they lend, but financial leverage primarily benefits the equity investors who shoulder the risk associated with the use of leverage.

The Advantages of Financial Leverage Accrue Primarily to