When the Return On Investment (ROI) exceeds interest rate, the financial leverage is ______.

Favourable

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Unfavourable

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Constant

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None of the above

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Solution

The correct option is A Favourable
Return on investment $(R O I)$ is a measure of the profitability of an investment.
A high return on investment means that an investment generates favorable profit compared to its investment cost.
If an investment has a positive $R O I$ and there are no other opportunities with a higher $R O I$ then the investment should be undertaken.
A higher $R O I$ means that investment gains compare favorably to investment costs.

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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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