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What are the advantages and disadvantages of financial leverage?
Wiki User
∙ 14y ago
A major advantage is optimization of shareholders' wealth through mix of debt and equity, taking advantage of the U.S. tax system which favors debt financing by making interest deductible from income when calculating the company's federal tax liability. Low cost debt, especially when interest is low, would increase the return of equity relative to the return of assets. A disadvantage would be if the debt becomes too costly, it reduces the return of equity below the return of assets. Companies that are highly leverage in this case might find it difficult to make payments on their debt in times of trouble and also difficult to obtain additional financing from lenders.
Wiki User
∙ 14y ago
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Why dont you ask your teacher :P
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ur mama
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