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Management · Q59

Financial Management

Graduate and Post Graduate · Management · question 59

Q59

A firm will have favourable leverage if its _____ are more than the debt cost

A.
debt
B.
interest
C.
equity
D.
earnings
Answer

Answer: Option D

Solution

Answer: Option D
Solution:
A firm will have favourable leverage if its earnings are more than the debt cost. Financial leverage is favorable when the uses to which debt can be put generate returns greater than the interest expense associated with the debt.