This technical note describes the connection between a company’s use of debt and shareholder return requirements. It explores the theoretical arguments about how the cost of equity changes with the use of debt, and discusses the limitations of the individual views. It also provides conceptual and practical guidance for the use of “levered” and “unlevered” beta.

This technical note describes the connection between a company’s use of debt and shareholder return requirements. It explores the theoretical arguments about how the cost of equity changes with the use of debt, and discusses the limitations of the individual views. It also provides conceptual and practical guidance for the use of “levered” and “unlevered” beta.
This is a Darden case study.
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from
Susan Chaplinsky,
Robert S. Harris
Source: Darden School of Business
16 pages.
Release date: 01 April 1997. Prod #: UV0106-PDF-ENG
The effects of debt-equity policy on shareholder return requirements and beta HBR case solution

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