General Studies · Capital Structure
What is the primary motive for using Leverage/Gearing (financial debt) in the capital structure of a firm?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1To reduce the fixed operating costs of the firm.
- 2To amplify the return on equity (EPS) for shareholders due to the cheaper cost of debt and the interest tax shield.✓
- 3To increase the stability of Earnings Before Interest and Tax (EBIT).
- 4To increase the firm's total asset base
Correct answer
To amplify the return on equity (EPS) for shareholders due to the cheaper cost of debt and the interest tax shield.
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