Fin 350, p3-3 and p3-21
Pelican Paper Inc. has a complicated relationship with financial leverage. The use of borrowed money to improve returns on investment is financial leverage. However, it can expose companies to greater risk if they are not properly managed. The higher their level of debt, the more risky its operations may become from an investor’s perspective. Pelican paper must balance its borrowing carefully with wise investments, in order maximize profits and reduce risks.
Higher levels of financial leverage can be achieved by accessing lower-cost capital to chase higher goals. This will allow firms to generate better returns if the strategy is successful. However ,too much reliance upon this form financing creates extra burden terms meeting interest payments hindering company’s ability generate sufficient cash flows maintain success further expanding scope influence over time . When deciding on the right balance, it is important to consider long term sustainability in each scenario. This should also be considered when evaluating current economic cycles cost effectiveness and options for team members.