FIN 200 Week 4 Discussion Questions

Discussion Question 1

Provide an example of a situation where a company would want to use leverage. What might the company do to achieve that leverage?

A - An example of a company using leverage are mortgage companies. Mortgage companies earn a profit regardless of the current economic status of the country. For instance, if a home is sold to the Johnson family and after two years the Johnson family foreclosures on the home the bank or the mortgage company repossess the home and sells the home at the current market value. The leverage the mortgage company has is that the payments the Johnson family made over two years are non refundable, therefore the mortgage company invests the money and resells the house at a profit. In order to achieve leverage...