The effect of leverage on an acquiring firm's financial returns is negative and thus should be avoided.

Question

Quizplus · Accepted Answer

The effect of leverage on an acquiring firm's financial returns can be positive or negative depending on various factors such as the cost of debt, interest rates, and the growth potential of the acquired company. While high leverage can increase the risk of financial distress, it can also amplify the returns on investment if the deal generates sufficient cash flows to service the debt. Therefore, leverage should be used judiciously and in combination with other financing sources to optimize the financial returns for the acquiring firm.

The Effect of Leverage on an Acquiring Firm's Financial Returns