If a Company Borrows Money to Finance an Investment and the Return

question 41

Multiple Choice

If a company borrows money to finance an investment and the return on the investment turns out to be lower than the cost of borrowing, which of the following statements is true?

• A)The shareholders will earn a lower rate of return than if they hadn't borrowed money.
• B)The shareholders will earn a higher rate or return than if they hadn't borrowed money.
• C)The venture will break even, but not earn a return.
• D)The investment will lose more money than if it had not been financed by debt.

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Definitions:

Analysis of Variance

A collection of statistical models and their associated procedures used to analyze the differences among group means.

Production Processes

The methods and sequences of activities involved in the manufacture of a product or delivery of a service.

Mean Hourly Units

The average quantity of units produced or operated in an hour.