Char2023-07-22 23:49:15
CharQ79, I understand debt increase then leverage increase, but why would increase cost of equity?
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Alex2023-07-24 09:37:42
Alex你好同学
According to MM Proposition II
adding leverage to a company’ capital structure increases the risk to equityholders because greater debt increases the probability of bankruptcy. As a result, equityholders will demand a higher return on their equity investment as leverage increases in order to offset the increase in risk.
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能回答我問的問題嗎？ I wanna ask about cost of equity ?
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higher return on their equity investment 说的就是cost of equity
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