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QUESTION 20 Successful use of leverage is evidenced by a Rate of return on investment greater...

QUESTION 20

  1. Successful use of leverage is evidenced by a

    Rate of return on investment greater than the rate of return on stockholders' equity.

    Rate of return on investment greater than the cost of debt.

    Rate of return on sales greater than the rate of return on stockholders' equity.

    Rate of return on sales greater than the cost of debt.
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Answer #1

The answer is : Rate of return on investment greater than the cost of debt.

Explanation : Leverage refers to the amount of risk that the company takes by issuing debt. When the return on investment is greater than the cost of debt, it indicates that the company is earnings more on the investment than what it is required to pay to the debts, so it indicates a successful use of leverage.

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