Companies that use financial leverage (debt specifically) to finance their assets face certain risks and rewards.

a. What are some of the risks associated with an increased use of debt financing?

b. Is it preferred to finance with a greater amount of debt than equity or visa versa? Explain what ratios would change as a result of changing the blend of financing between debt and equity.

c. How would an increase in debt financing relative to equity financing impact the ROE? (Provide an explanation that would support your answer.)