Question & Answer: When can a high debt to equity ratio be positive for a compan…..

When can a high debt to equity ratio be positive for a company’s financial health and share price

A) If the earnings growth the borrowed money generates is higher than the cost to borrow the money
B) If the company has a low base of fixed assets
C) If the earnings growth the borrowed money generates is lower than the cost to borrow the money
D) If the company does not borrow funds at all

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A. If the earnings growth the borrowed money generates is higher than the cost to borrrow the money.

For example, if the return on assets is 8 %, and the cost of debt is 6%, it would be a positive for the company’s health and its share price.

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