Interest expense creates magnification of earnings

Assignment Help Financial Accounting

Reference no: EM131214294

Interest expense creates magnification of earnings through financial leverage because:

a. Distributions to shareholders are tax deductible

b. The interst rate is variable

c. Interest accompanies debt financing

d. While earnings available to pay interest expense rise, earnings to residual owners rise faster becasue interst is a fixed charge.

e. The use of interest casues higher earnings.

Reference no: EM131214294

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