Why Do We Use Leverage If It Increases the Risk

question 63

Essay

Why do we use leverage if it increases the risk of a firm?

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Definitions:

Commercial Failure

Commercial failure refers to a product or business venture that does not achieve its financial objectives, often resulting in significant losses or bankruptcy.

Economic Failure

The inability of a market or economy to allocate resources efficiently, often leading to wastefulness or loss.

Creditors

Individuals or institutions that extend credit by lending money or providing goods or services that will be paid for later.

Leveraged Buyout

A transaction where a company is acquired primarily using borrowed funds.