Leverage and Deleverage: Liquidity tends to increase under low interest rate and generates bubble. And it affects on the financial soundness of each individual firm. In this line, let's suppose that this firm has all assets as real estate and the following balance sheet initially.

Now the firm borrow $200milion more to purchase more real estate. Then real estate price doubles as expected. However unluckily the bubble popped out later and thus the price becomes to the half . And worst of all, the lender requests to repay $200milion. Now evaluate the change in the financial soundness of this firm in terms of Debt to Equity ratio in the above 4 cases.

Debt (100million$) Asset (200million$) Equity (100million$)