A Company That Earns a Rate of Return on Its

question 50

Multiple Choice

A company that earns a rate of return on its investments lower than the interest rate on its debt is said to have

• A) unfavorable financial leverage.
• B) a sub-optimal capital structure.
• C) favorable financial leverage.
• D) negative financial leverage.

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Definitions:

Prudence

The quality of being careful, thoughtful, or wise in practical affairs or decision-making.

Fear of Failure

The persistent anxiety or aversion to the possibility of failing, which can inhibit one's willingness to take risks or attempt certain tasks.

Desire for Success

The motivation or drive to achieve goals and excel in tasks.

Negative Relationship

A relationship in which one variable decreases as the other increases, indicating an inverse association between them.