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Question
Samara Ltd. has Debt Equity ratio of 3:1 whereas Gehlot Ltd. has Debt Equity ratio of 1:1. Name the advantage Samara Ltd. will have over Gehlot Ltd., when the rate of interest is lower than the rate of return on investment of the company.
Options
Trading on equity
Low risk
Low cost of equity
Greater flexibility
MCQ
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Solution
Trading on equity
Explanation -
If the company's ROI is higher, it can opt to increase its EPS by trading on equity, implying that its ability to employ debt is stronger.
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Trading Procedure of Stock Exchange
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