Asked by Maricris Tersol on Jun 10, 2024
Verified
The use of debt financing always yields an increase in return on equity.
Debt Financing
A method of funding where a company raises capital through borrowing, typically from institutional sources or by issuing bonds.
Return On Equity
A measure of financial performance calculated by dividing net income by shareholders' equity, indicating how efficiently a company uses investments to generate earnings growth.
- Evaluating the effects of debt financing on a company's return on equity and overall risk profile.
Verified Answer
MN
Megan NadalJun 15, 2024
Final Answer :
False
Explanation :
The use of debt financing can magnify returns when things are going well, but it can also magnify losses when things are going badly. Therefore, the use of debt financing does not always yield an increase in return on equity.
Learning Objectives
- Evaluating the effects of debt financing on a company's return on equity and overall risk profile.
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