Question: Unitrode Inc., which makes analog/linear integrated circuits for power management, is a firm that has not used debt in the financing of its projects. The managers of the firm contend that they do not borrow money because they want to maintain financial flexibility.
a. How does not borrowing money increase financial flexibility?
b. What is the trade-off you would be making, if you have excess debt capacity, and you choose not to use it, because you want financial flexibility?