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How can using more debt impact a firm's capital structure?

Questions:

1. How can using more debt impact a firm's capital structure?
2. Discuss the trade-offs between incremental IPO proceeds and debt financing.
3. How would the company's balance sheet be impacted by debt financing rather than using cash?
4. How would the company's return on equity be impacted by utilizing more debt?

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1. How can using more debt impact a firm's capital structure.
Debt represents the amount borrowed by the firm from the lenders. Debt can help in reducing the cost of capital. But if it is used in excess then the firm's financial risk increases. With the increase in financial risk, cost of capital increases. Hence excess leverage should be avoided.
Some of the benefits of raising money form debt are that it doesn't lead to dilution of ownership and there is no need of sharing profits. It is also cheaper source of funds as compared to the equity. The ...

Solution Summary

This solution discusses the use of debt for financing a corporation. This solution is 340 words with three online references.

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