What are the risks of under levering a company? What are the risks of over levering...

What are the risks of under levering a company? What are the risks of over levering a company?

Expert Solution

Risks of underleveraging
Not able to make the efficient use of borrowing or cheap borrowing
Tax advantages
Equity shareholders will lose out from the benefits of gearing or the multiplication of every dollar put to work

Risks of overleveraging
Bankruptcy or financial distress
Cost of equity might rise and WACC as well thus resulting in lower stock prices
Multiplies losses

Not able to generate sufficient cash flows to service debt

jeff jeffy answered 1 year ago

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What are the risks of under levering a company? What are the risks of over levering...

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