Describe how the following three subjects are interrelated: (give an example) a. Capital structure b. Leverage c. Risk

Expert Solution

Leverage as well as capital structure and risk are related to each other as capital structure is a combination of of leverage and equity capital, so capital structure will be including leverage to large extent and it will use the leverage in order to lower its overall cost of capital but there will be a risk related to use of leverage in the capital structure because it can have a risk related to insolvency and financial distress for the company if these leverages are not maintained properly.

Risk is having a direct association with leverage because if the leverage will be higher the risk will be higher on the company and if the leverage will be lower, the risk will certainly go lower.

Hence all these concepts are highly interrelated.

jeff jeffy answered 2 years ago

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Describe how the following three subjects are interrelated: (give an example) a. Capital structure b. Leverage c. Risk

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