Leveraging Startup’s Development with Debt

Roberto Moro-Visconti ()
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Roberto Moro-Visconti: Catholic University of the Sacred Heart
Authors registered in the RePEc Author Service: Roberto Moro Visconti

Chapter Chapter 7 in Startup Valuation, 2021, pp 161-182 from Springer

Abstract: Abstract Seasoning startups can afford to collect debt whenever they start creating positive cash, build up worthy collateral assets, and soften information asymmetries. Leveraging growth with debt may increase it, albeit with a correspondent risk growth. Capital budgeting metrics, represented by Net Present Value or Internal Rates of Return, incorporate debt underwriting. This analysis is preparatory to Modigliani & Miller proposition II: as the proportion of debt in the company’s capital structure increases, its profitability, proxied by ROE increases in a linear fashion. An empirical case is provided, starting from a real balance sheet.

Keywords: Operating cash flow; Cost of capital; WACC; Net present value (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/978-3-030-71608-0_7

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