. bankruptcy process 16- 2 Chapter Outline • The Capital Structure Question • The Effect of Financial Leverage • Capital Structure and the Cost of Equity Capital • M&M Propositions I and II with Corporate. Chapter 16 Financial Leverage and Capital Structure Policy McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. Key Concepts and Skills • Understand. increase leverage by issuing debt and repurchasing outstanding shares • The firm can decrease leverage by issuing new shares and retiring outstanding debt 16- 4 Choosing a Capital Structure • What