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Overleveraged refers to a situation where an individual, company, or organization has taken on too much debt relative to its equity or assets. This excessive borrowing can lead to financial instability, making it difficult to meet debt obligations, especially during economic downturns or when cash flow decreases. Overleveraging increases risk, as it can result in insolvency or bankruptcy if the entity cannot generate sufficient revenue to cover its debts.

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1mo ago

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Is minimizing weighted average cost of capital by having a largely debt-based capital structure a high-risk strategy given the threat of bankruptcy in an over leveraged business?

Yes. All of the items in your question denote a high-risk strategy. "Largely debet-based capital structure", "given the threat of bankruptcy", overleveraged business". Minimizing the weighted average cost of capitol is simply an accounting tool and is not a strategy and so has no impact on the risks involved in operating a business. Yes, try and keep that debt down.


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