Question: HOMEMADE LEVERAGE 73. Explain homemade leverage and why it matters. Homemade leverage is the ability of investors to alter their own financial leverage to achieve

HOMEMADE LEVERAGE

73. Explain homemade leverage and why it matters.

Homemade leverage is the ability of investors to alter their own financial leverage to achieve a

desired capital structure no matter what a firm's capital structure might be. If investors can use

homemade leverage to create additional leverage or to undo existing leverage of the firm at their

discretion then the actual capital structure decision of the firm itself becomes irrelevant.

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