Tata sons have a debt-equity ratio of 4:1 and Bajaj has 1:1 debt-equity ratio. Name the advantage, Tata sons may have over Bajaj.

Return of investment

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Trading on equity

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Solution

The correct option is B
Trading on equity

Trading on equity refers to the increase in profit earned by shareholder because of the presence of debt in the capital structure as long as the ROI exceeds the interest rate on debt.

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Tata sons have debt-equity ratio of 4:1 and Bajaj has 1:1 debt-equity ratio.___ is the advantage, Tata sons have over Bajaj.

A company with a debt-to-equity ratio of 2.5:1 and Rs 15,00,000 of shareholders' funds has debt of ________

(\frac{D e b t}{E q u i t y})

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