The Concept of Leverage Is That

question 159

Multiple Choice

The concept of leverage is that

• A)it is appropriate to borrow if the return on the assets is greater than the cost of the financing.
• B)it is appropriate to borrow as long as the lender approves the loan.
• C)it is unfavorable to borrow funds rather than raise the capital from stockholders.
• D)a high debt-to-equity ratio is favorable.

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Definitions:

Common Shares

A type of equity ownership in a corporation, with holders typically having voting rights and potentially receiving dividends, reflecting a share in the company's success or failure.

Retained Earnings

Profits that a company has earned to date, less any dividends or other distributions paid to shareholders.

Total Assets

The sum of all current and non-current assets owned by a company, indicating its overall value.

Sales/Total Assets

A financial ratio that measures how efficiently a company is using its assets to generate sales.