Many companies, such as Wall Financial Corporation, a real estate developer located in Vancouver, borrowed heavily during the past 20 years to exploit the advantage of financing operations with debt. At first, companies were often able to earn operating income higher than their interest expense and were, therefore, quite profitable. However, when the business cycle turned down, their debt burdens caused problems for creditors. In extreme cases, operating income was less than debt servicing or interest expense.
Required
Is it unethical for managers to commit a company to a high level of debt? Or is it just risky? Who could be hurt by a company's taking on too much debt? Discuss.