Create a 4 page essay paper that discusses Leverage and capital structure chapter 13 solutions.
Total leverage reflects the combined impact of operating and financial leverage on the firm. High operating leverage and high financial leverage will lead to high total leverage. The following equation explains the relationship between the degree of total leverage and the degrees of both operating and financial leverage.
Poor capital structure decisions can result in high cost of capital, thereby lowering the NPVs of projects. On the other hand, effective capital structure decisions can lower the cost of capital leading to higher NPVs thereby increasing the value of the firm. All the items on the right hand side of the balance sheet, excluding current liabilities are sources of capital.