Question

What is meant by the terms favorable and unfavorable leverage? Give examples. Chegg

Answer 1

Financial leverage can be favorable or unfavorable depending upon whether the fixed interest exceeds the explicit cost or not.

Explanation:

• The leverage will be favorable in the case when the firm successfully earns more on the products purchased with the fixed costs and funds.
• The leverage is considered unfavorable when the firm does not earn or earns less than the cost of the funds.  

Learn more about financial leverage here:

Operating leverage is easier to control and manage than financial leverage

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