Financial leverage
A)may increase the return to the common shareholders.
B)uses lower cost borrowed funds and earns a higher rate of return on those funds than their cost.
C)requires the common shareholders to take on more risk in their investment.
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

Financial leverage can increase the return to common shareholders by earning a higher rate of return on borrowed funds than their cost. However, it also requires the common shareholders to take on more risk in their investment as they are responsible for paying back the borrowed funds. Therefore, all of the above statements are accurate.

Financial Leverage