Multiple Choice
The managers at Bally Manufacturing decided to borrow money to finance a new production facility. The loan agreement they signed required that they pay 10 percent interest on the loan. Based on this information, which of the following statements is true?
A) Bally doesn't have to pay the 10 percent if the firm isn't profitable.
B) Bally can pay the 10 percent whenever its managers vote to pay it.
C) The company will make more money if the firm earns less than a 10 percent return on its investment in the new plant.
D) Bally is using financial leverage to increase profits as long as the firm earns more than the 10 percent it pays to borrow the money required to finance the new plant.
E) Even if the new plant is extremely profitable, Bally should have found another way to finance the new plant.
Correct Answer:
Verified
Correct Answer:
Verified
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