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

Question

Quizplus · Accepted Answer

A compound leverage factor greater than 1 indicates that the firm's debt has a positive contribution to the firm's ROA. This means that the firm is able to earn a return on its assets that is higher than the cost of its debt, resulting in a positive leverage effect.

A Firm Has a Compound Leverage Factor Greater Than 1;