Why Does a Firm Use Operating and Financial Leverage? in What

question 51

Essay

Why does a firm use operating and financial leverage? In what ways does it help the firm and in what ways does it hurt the firm?

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Definitions:

Formal Rules

Established regulations, principles, or guidelines that are officially recognized and enforced in a particular setting or organization.

Division of Labour

The distribution of various segments of a production process or activity among several people to enhance efficiency and productivity.

Hierarchy of Authority

A system within organizations where power and responsibilities are ranked from the top (highest authority) to the bottom (lowest authority).

Mechanistic Design

A structure in organizations characterized by strict procedures, rigid divisions of labor, and centralized decision making.