Question

when is financal leverage considered favourable?

Answer 1

Financial leverage is favorable when the uses to which debt can be put generate returns greater than the interest expense associated with the debt.

Answer 2

Answer:

• When return on investment exceeds the rate of interest, the financial leverage is favourable or the firm is said to be trading on equity.

• If the financial leverage is favourable, its advantage is passed on equity stockholders in terms of higher returns.