This is a discussion, please 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 – 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?
