Fin/419 week 4 discussion question 1

Hi, Class,

Speaking of leverage, shareholders tend to watch the financial statements and other public information closely.  If the level of debt gets too large for their comfort, they may decide to sell their shares.  This is particularly true of institutional investors, who have their own analysts looking at the companies all the time.  So, there is a certain level of debt a company can carry before the shareholders start to worry too much.  Remember, if a company is dissolved, the debt holders get paid before the equity holders, if there is anything left for the equity holder.