After the issuance of debt, an unlevered firm becomes Blank______.Multiple choice question.unstablemore vibrantleveredstratified

The correct answer to the question "After the issuance of debt, an unlevered firm becomes ______." is "levered."

Explanation

1. Understanding Leverage: An unlevered firm is one that operates without any debt. When it issues debt, it takes on financial obligations which means it is now using borrowed funds in its capital structure. This process is known as leveraging.

2. Impact of Leverage: By becoming levered, the firm can potentially increase its return on equity as it is utilizing debt to finance operations. However, this also introduces higher risk due to the obligation to pay interest and principal on the debt, especially in adverse economic conditions.

3. Choice Analysis:

   • Unstable: This option does not reflect a direct consequence of issuing debt.
   • More Vibrant: This is subjective and does not directly relate to financial leverage.
   • Levered: Accurate, as the firm takes on debt.
   • Stratified: This term does not apply to the financial context in question.

In conclusion, when an unlevered firm issues debt, it transitions into a levered firm, signifying that it has financial leverage due to the incorporation of debt into its capital structure.