When the return on equity is equal to the return on capital employed:

A) the return on borrowed money equals the cost of borrowing the money.
B) the firm has optimized its financial leverage.
C) the firm is unleveraged.
D) All of the above

Return on Equity

A measure of financial performance calculated by dividing net income by shareholders' equity, indicating how efficiently equity is used to generate profits.

Capital Employed

The total amount of capital used for the acquisition of profits by a firm or project, typically represented by the value of all assets minus current liabilities.

Financial Leverage

The use of borrowed funds to increase the potential return on investment, often measured by the ratio of a company’s debt to equity.