Question

The central issue underlying the study of leverage is whether or not it influences stock price and whether there’s an optimal structure. But the whole idea seems kind of fuzzy and uncertain. Why are people so interested? (Hint: Think of management’s goals and of the world of mergers.)

Answer 1

The word leverage comes from physice means lever that is maintain multiple forces like control the body operations, Manage the minds and many other which seems to be control of all body in the hand of lever. Lever is the essential part of the body. It means lever is not all about the body but it is s essential and important part for human body.

Leverage refers to the multiply the effects of efforts in a general term. Financial leverage is used in Business base that financial leverage stands from borrowing the money from the debt for investing the same in the business.

Leveraged means debt and unleveraged means equity which are borrowed for investing in the business. The central issue underlying the study of leverage is whether or not it influences stock price and whether there’s an optimal structure is think about that-

A capital firm having $2 million equity capital and no debt. Suppose, the firm borrows $0.50 million and take or buys its own stock and then retires the share then it is traded a quarter to its equity for debt is known as CAPITAL RESTRUCTURING.

The process should not affect the share price still outstanding. that is the three Quarter of the original shares represent the three quarter of the share price. So there is no impact on the shares.