how the ratio of debt to equity affects different stakeholders in a proposed merger, Developing and Branding New Offerings help

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Using the fundamental principles of financial leverage, discuss how the ratio of debt to equity affects different stakeholders in a proposed merger.

According to the
text, a company showing debt on their balance sheet is considered to be levered
and a company isunlevered if it operates only
on its equity. The debt-to-equity ratio is based
on long-term
debts and is calculated by dividing the long-term debt by the stockholder’s
equity (Graham,
Smart, &Megginson,
2010, pg. 44). “The fundamentalprinciple of financial leverage is
substituting debt for equity increases expected returns toshareholders but also increases the risk
that equity investors bear.” (Graham, et all., 2010, pg.
416)

Depending on whether or not a merge is of equals, where the shares are equal
among both companies, or a merge where shares are bought by one of the
companies; the debt to equity ratio will play a part in the merge. In an equal
merge the ratio of stakeholders will be affected either by carrying over as an
equal or will be traded in to the purchasing company to buy new shares. If new
shares are to be purchased, the stakeholder may have to pay the difference of
their traded in shares. The other option would be
getting paid out for their shares. The importance of the ratio will depend on
their stake in the merger.