When a corporation invests borrowed money in assets that generate profits greater than the after-tax cost of the debt, it increases the return on equity for common shareholders. creates financial leverage. has a mix of debt and equity in its capital structure. does all of these options. If the effective rate of interest is greater than the contract rate, the bonds will sell at par. a premium. a discount. any of these choices, depending on other circumstances.
When a corporation invests borrowed money in assets that generate profits greater than the after-tax cost of the debt, it increases the return on equity for common shareholders. creates financial leverage. has a mix of debt and equity in its capital structure. does all of these options. If the effective rate of interest is greater than the contract rate, the bonds will sell at par. a premium. a discount. any of these choices, depending on other circumstances.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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When a corporation invests borrowed money in assets that generate profits greater than the after-tax cost of the debt, it
- increases the return on equity for common shareholders.
- creates financial leverage.
- has a mix of debt and equity in its capital structure.
- does all of these options.
If the effective rate of interest is greater than the contract rate, the bonds will sell at
- par.
- a premium.
- a discount.
- any of these choices, depending on other circumstances.
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