What is financial leverage?
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What is financial leverage?
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Solution Summary
The solution explains financial leverage with an example of a new company with equity owners only, and contrasts it to the same new company with debt and equity owners.
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1. Financial leverage refers to the use of fixed-income securities-debt and preferred stock-and financial risk is the additional risk placed on the common stockholders as a result of financial leverage.
Conceptually, the firm has a certain amount of risk inherent in its operations; this is its business risk, which is defined ...
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