Written with graceful simplicity, The Big Wave won the Childrenâs Book Award of the Child Study Association of America when it was first released. This ebook features an illustrated biography of Pearl S. Buck including rare images from the authorâs estate. Read on Scribd mobile: iPhone, iPad and Android.
Well, the âadvantageâ of increased financial leverage is a potentially higher return on equity. The disadvantage, on the other hand, is that the business is now riskier as it is financed with more debt (when revenue falls for unexpected reasons, there's now a whole lot of interest that still has to be paid).
debt) is now greater than the increase in the WACC (due to the increase in the financial risk/Keg). Thus, WACC falls as gearing increases. Therefore, if a company wishes to reduce its WACC, it should borrow as much as possible (Figure 2 on page 84). Summary: Benefits of cheaper debt > Increase in Keg due to increasing financial risk.