AuthorTopic: Debt's impact on capital structure
@2015-03-17 13:31:30
Hello all, first time posting here. I have two questions:

I.) "When a firm increases debt in the capital structure:"
A: Expected return on firms common stock increases.

I searched CFAI Reading 37 (the reading the Analyst Notes basic questions cover) and even did a word search, and couldn't find any instance of this being covered. Where is this point covered in the reading?

II.) "In a world of no taxes, the introduction of a small amount of debt into the capital structure of an all equity firm:"
A: does not impact the risk of the firm

Going over the CFAI material, I couldn't find any mention of debt not impacting the risk of the firm, given no taxes. Could someone explain this to me?

Thank you!

CFA Discussion Topic: Debt's impact on capital structure

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Martin Rockenfeldt

Martin Rockenfeldt