Financial leverage is called favorable if __________________.

Return on Investment is lower than cost of debt

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ROI is higher than cost of debt

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Debt is nearly available

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If the degree of existing financial leverage is low

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Solution

The correct option is B ROI is higher than cost of debt
Financial leverage refers to proportion of debt in overall capital. It is said to be favorable situation when the return on investment becomes higher than cost of debt. ROI becomes greater, EPS also increases and financial leverage is said to be favorable.

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Similar questions

Financial leverage is called favourable if

(a) Return on investment is lower than the cost of debt

(b) ROI is higher than the cost of debt

(d) If the degree of existing financial leverage is low

Financial leverage is called favourable if

(a) Return on investment is lower than the cost of debt

(b) Rol is higher than the cost of debt

(d) If the degree of existing financial leverage is low

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