Homemade leverage makes which one of the following irrelevant?
A) Cash ﬂows from an investment.
B) Interest payments on a loan.
C) Dividends on a stock.
D) A ﬁrm's capital structure.
E) A ﬁrm's effective tax rate.

Question

Quizplus · Accepted Answer

Homemade leverage refers to the use of personal borrowing to supplement or replace traditional corporate financing. As such, it makes a firm's capital structure less relevant since the individual investor is using their own personal financing strategies, rather than relying solely on the structure of the firm's financing.

Homemade Leverage Makes Which One of the Following Irrelevant