Question

With respect to financial leverage which of the following is not a valid statement? Financial leverage makes good years look better by increasing the shareholder return. Return on assets will generally equal return on common equity except when the company has no long-term debt. Financial leverage is beneficial when the company earns more than the incremental after-tax cost of debt. Financial leverage makes bad years look worse by decreasing the shareholder return.

          With respect to financial leverage which of the following is not a valid statement?
Financial leverage makes good years look better by increasing the shareholder return.
Return on assets will generally equal return on common equity except when the company has no long-term debt.
Financial leverage is beneficial when the company earns more than the incremental after-tax cost of debt.
Financial leverage makes bad years look worse by decreasing the shareholder return.

Added by Jose Ignacio K.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

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Financial leverage makes good years look better by increasing the shareholder return. - This is a valid statement as financial leverage can amplify the returns for shareholders in good years. Show more…

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With respect to financial leverage which of the following is not a valid statement? Financial leverage makes good years look better by increasing the shareholder return. Return on assets will generally equal return on common equity except when the company has no long-term debt. Financial leverage is beneficial when the company earns more than the incremental after-tax cost of debt. Financial leverage makes bad years look worse by decreasing the shareholder return.