When Employing a Strategy of Financial Leverage

question 29

Multiple Choice

When employing a strategy of financial leverage:

• A)the cost of using borrowed funds should be less than the return generated by the borrowed funds
• B)the interest rate on borrowed funds should be more than the rate of return on
• Owners' equity
• C)the goal of the corporation is to have zero liabilities
• D)the main goal is the highest possible total income

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Definitions:

Contributed Capital

Funds that shareholders invest in a company by purchasing shares directly from the company.

Functional Currency

The currency of the primary economic environment in which an entity operates; used in financial reporting.

Closing Rates

The exchange rates used to convert the financial statements of a foreign subsidiary into the presentation currency of the parent company for consolidation purposes.

Functional Currency

The primary currency used by a business or unit, reflecting the economic environment in which it primarily operates.