Complete the Following Chart to Illustrate How Leverage Can Increase

question 99

Essay

Complete the following chart to illustrate how leverage can increase investors' returns while concurrently exposing them to large losses.
Facts: Calabria Corporation is a new company and has only one asset,its cash of $105,000 from the sale of common shares.
In scenario 1,Calabria invests the $105,000 in a venture that will pay out either $85,000 or $135,000 at the end of one year,depending on the success of the venture.
In scenario 2,Calabria borrows $210,000 at 7% interest and invests $315,000 in the same project outlined in Scenario 1.The payout will be $255,000 ($85,000 × 3)or $405,000 ($135,000 × 3)because it invests three times as much.

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Definitions:

Constructive Direction

Guidance or leadership that positively influences individuals or teams towards achieving organizational goals.

Frame Bending

The process of altering or adapting the rules, structures, or belief systems within an organization to facilitate change or improvement.

Nadler and Tushman

Scholars known for their work on organizational dynamics, change management, and the congruence model for understanding organizations.

Frame Breaking

The act of radically changing established procedures or ways of thinking in an organization or field, often to spark innovation or adapt to new challenges.