The amount of leverage in a firm's capital structure-the mix of long-term debt and equity maintained by the firm-can significantly affect its value by affecting return and risk.

Question

Quizplus · Accepted Answer

The use of leverage can increase the return on investment for equity investors but can also increase the risk of financial distress or bankruptcy if the firm is unable to meet its debt obligations. Therefore, the amount of leverage in a firm's capital structure can affect its overall value.

The Amount of Leverage in a Firm's Capital Structure-The Mix