If an Entity Is Able to Earn More on Borrowings

question 34

Multiple Choice

If an entity is able to earn more on borrowings than the cost of those borrowings the return on equity will:

• A) vary.
• B) increase.
• C) decrease.
• D) be unchanged.

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Definitions:

Investing Activities

Transactions involving the purchase or sale of long-term assets and investments, a component of a company's cash flow statement.

Equipment

Tangible, long-term assets used in the operation of a business to produce goods or provide services, usually subject to depreciation over their useful lives.

Cash Flow

The net amount of cash and cash-equivalents being transferred into and out of a business.

Operating Activities

Activities that relate to the primary, day-to-day operations of a business, such as selling products or providing services.