Capital structure of ABC Company has a mixture of debt and equity. The company is considering a restructuring that would involve issuing more debt and using proceeds to buy back some of the outstanding equity. How it will effect on financial leverage?
Below is the idea to solve subject GDB. Kindly don't copy as it is, take idea from here and make it in your own style / words.
1. Issuing More Debts means that we are issuing bonds / debentures etc.
2. Buy back some outstanding equity means we are invoking Call Provision for our shares.
3. Effect on financial leverage shall be positive.
Kindly review related lectures for a better understanding.
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