This is a discussion, provide a one page response for what is being asked.
Discussion – Financial Leverage and WACC
Some critics blame debt for financial crisis of 2008. Although this is probably not true, debt did play some role in it. Crisis did not stop what The Economist calls addiction to debt in its recent article (A senseless subsidy, The Economist, May 16, 2015) – balance sheets of corporations get more and more debt and little equity.
Looking at the WACC formula suggests that more debt relative to equity might lower WACC. Is financial leverage “always” good or “always” bad? What does the Economist article say about debt being bad?
Looking at different industries, suggest which ones would be expected to have greatest and least
leverage.
(A senseless subsidy, The Economist, May 16, 2015
https://www.economist.com/briefing/2015/05/16/a-senseless-subsidy
