Explain how the use of leverage can increase shareholder’s wealth. Leverage can also impact you in your personal life. Explain how you can use it to your advantage. In theory, what happens to the...

Solution:
1. The leverage can increase shareholders wealth in long term as leverage is a debt which is incurred for
investment purpose and helps in increasing value of the company. The leverage provides capital
opportunity for investment in new projects or for expansion projects. Although leverage increases the
interest rate expense of the company but at the same time it provides the needed capital. The acquired
capital will be invested in adding asset to the company which will provide more operating profit in
future. Moreover the leveraged cost is fixed and the future income from leveraged asset is mostly
higher than the leveraged cost.
2. Leverage is a word which has come from the word lever in physical science. In personal life if
someone needs to buy a bike for traveling from home to office then they can borrow debt or take loan
and pay interest on the borrowed amount and the person will save time in commuting and can do some
other productive...