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    100% borrowed capital

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    Since borrowed capital provides significant leverage for return on equity, why don't firms run on 100% borrowed capital?

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    Borrowed capital can come from a number of sources, but one of the most important issues to consider is just that - borrowed capital is always borrowed. If a company were to run on borrowed capital 100% of the time, they'd literally run themselves into debt. Borrowed capital, which is most commonly extended in the form of bank loans or ...

    Solution Summary

    This solution explains why firms don't (and can't) run on 100% borrowed capital. A thorough explanation is provided.