The Costs of Debt

As any borrower will attest, debt certaintly has disadvantages. In particular, borrowing money can expose the firm to default and eventual liquidation, increase the

□ There is evidence that increases in leverage are followed by improvements in operating efficiency, as measured by operating margins and returns on capital. Palepu (1990) presents evidence of modest improvements in operating efficiency at firms involved in leveraged buyouts. Kaplan(1989) and

□ Leveraged Recapitalization:

In a leveraged recapitalization, a firm borrows money and either buys back stock or pays a dividend, thus increasing its debt ratio substantially.

agency problems arising from the conflict between the interests of equity investors and lenders, and reduce the flexibility of the firm to take actions now or in the future.

Lessons From The Intelligent Investor

Lessons From The Intelligent Investor

If you're like a lot of people watching the recession unfold, you have likely started to look at your finances under a microscope. Perhaps you have started saving the annual savings rate by people has started to recover a bit.

Get My Free Ebook


Post a comment