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Why increasing financial leverage increases the risk borne

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Reference no: EM131130231

1. What is operating leverage? How, if at all, is it similar to financial leverage? If a firm has high operating leverage would you expect it to have high or low financial leverage? Explain your reasoning.

2. Explain why increasing financial leverage increases the risk borne by shareholders.

3. Explain how a company can incur costs of financial distress without ever going bankrupt. What is the nature of these costs?

Reference no: EM131130231

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