sivaram (Asst Mgr-Taxation) (6918 Points)
02 December 2011What is really meant by Leverage effect? what is levered Firm and Unlevered Firm
Why we use Capitalisation rate for shareholders Funds when we use Debt as Debt and capitalisation rate for Long term Funds when we use Debt as capital
How to say in the Final Answer it is favourable Goodwill or Adverse Good will
can anyone explain with small example want to take this fundamentals into my muddy brain
Thanks in advance
ashish gupta
( student)
(1922 Points)
Replied 02 December 2011
the firm having debt potion in its capital (i.e. using long term debt) is called levered firm. And the firm which dont have any debt is called unlevered firm.
If the company's return on inverstment is higher than rate of interest on debt then using debt will fetch more return on equity. This is called leverage effect
sivaram
(Asst Mgr-Taxation)
(6918 Points)
Replied 02 December 2011
Mr Ashish Gupta Thanks for Reply any numerical illustration on this will help me a lot can u give in this forum itself ? if possible please
Thanks
sivaram
(Asst Mgr-Taxation)
(6918 Points)
Replied 02 December 2011
Mr Ashish Thanks
Just can u say If i find good will on both methods and to find it is favourable or adverse leverage in this manner
Effect of Leveraage =Goodwill on levered firm -good will on unlevered Firm
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