Question: How can a firm utilize leveraging to maintain a high level of competition? I need to relate this question to corporate finance.
Leverage is basically the inclusion of debts into the capital structure of the company. When compared to equity, debt is the cheaper source of financing. Leveraging can help reduce a company's cost of capital and increases the net present value for specific projects, but at the same time too much debt will increase the potential risk which can lead to the possibility of bankruptcy (Howe, 1988). Leverage has the potential to affect the firm in a negative or positive way. For example ...
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