When a firm exceeds a particular value of financial leverage, the overall value of the firm begins to decline.

Question

Quizplus · Accepted Answer

This is because excessive financial leverage increases the risk of bankruptcy and reduces the firm's ability to attract investors. It also increases the cost of borrowing due to higher interest rates, which can put pressure on cash flow and ultimately reduce the overall value of the firm.

When a Firm Exceeds a Particular Value of Financial Leverage