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Question 8.16: Regarding financial slack: a. What is it? b. How is slack cr...

Regarding financial slack:
a. What is it?
b. How is slack created?
c. Why do companies wish to have financial slack?

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a. Financial slack is the unused debt capacity of a company.
b. Financial slack is created when the company intentionally manages its financing activity so that its capital structure is less than what the company can handle.
c. Companies desire financial slack because it gives them flexibility, the ability to engage in investment opportunities that may come along for which financing is needed to make the investment.

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