Asked by Syafiqah Sukri on Jun 09, 2024
Verified
The use of debt financing insures an increase in return on equity.
Debt Financing
A method of raising capital through borrowing money from external sources, such as banks or bond investors, which needs to be repaid at a future date along with interest.
- Familiarize yourself with the debt-to-equity ratio and its relevance in analyzing a business's financial peril and structure.
Verified Answer
BN
Balqis NajihahJun 12, 2024
Final Answer :
False
Explanation :
Debt financing can increase return on equity if the firm earns more on the borrowed funds than it pays in interest. However, it also increases financial risk, and if the cost of debt exceeds the returns generated by its use, it can decrease return on equity.
Learning Objectives
- Familiarize yourself with the debt-to-equity ratio and its relevance in analyzing a business's financial peril and structure.
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