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Your initial discussion thread is due on Day 3 (Thursday) and you have until Day 7 (Monday) to respond to your classmates. Your grade will reflect both the quality of your initial post and the depth of your responses. Refer to the Discussion Forum Grading Rubric under the Settings icon above for guidance on how your discussion will be evaluated.
Leverage and Capital Structure [WLOs: 2, 3] [CLO: 3]
“The use of debt to fund the firm (called leveraging) carries with it benefits as well as risks” (Hickman et all., 2013, Chap 8, Overview, para. 4). In the short term, leverage lowers the weighted average cost of capital due to the typically lower required rates of return on debt as compared to equity. In the long run, debt requires interest payments and the principal must be repaid. A firm that cannot repay its debt faces default risk and/or bankruptcy. The risks due to excessive leverage are known as financial risks. Thus, as a firm considers using debt or equity to fund its business, it must consider both the benefits of debt and the financial risks of too much debt. In this discussion, you will evaluate a real-world scenario and consider the implications of the debt financing decision for the firm.
Prior to beginning work on this discussion forum,
How Alex Clark Turned $32,000 Into a Chocolate Phenomenon – 30 Under 30 | Forbes (Links to an external site.)
After watching the video, answer the following questions in your post:
Guided Response: Review several of your colleagues’ posts, and reply to at least two of your peers by 11:59 p.m. on Day 7 of the week. In your written responses to your classmates, address the following:
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