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FIN 200 WEEK 4 DQ 1

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A company in a startup situation would want to use leverage in order to
seek a higher rate of reward in the early stages of the business. By
borrowing the maximum amount of capital available for startup costs, the
company is able to minimize the amount of stockholders who will have to
be allowed to invest in the company and would later have to be paid dividends
as long as they continue to hold stock. As bank loans are paid off, not only
does the amount of repayment owed decrease, but the interest payment
amount decreases month by month.
The one watch out for over leveraging the company is the fact that if the
company does not see positive results, the company may be in financial
trouble as they will be required to make monthly payments no matter what
income they have coming in the form of revenue. Banks also look at
companies which are over leveraged as a high risk borrower. This rating
forces the banks to charge higher interest rates. Therefore, it is important for
the company to keep a good balance between leveraged borrowing and
shareholder investments. 00 WEEK 4 DQ 1

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A company in a startup situation would want to use leverage in order to seek a higher rate of reward in the early stages of the business.  By borrowing the maximum amount of capital available for startup costs, the company is able to minimize the amount of stockholders who will have to be al ...
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Anonymous
Awesome! Perfect study aid.

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