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The optimal capital structure has been achieved when the: A- debt-equity ratio is equal to 1. B- weight of equity is equal to the weight of debt. C- cost of equity is maximized given a pretax cost of debt. D- debt-equity ratio is such that the cost of debt exceeds the cost of equity.
The optimal capital structure is determined by several factors including all of the following except: a. corporate capital gains b. business risk c. potential bankruptcy risk d. agency costs
The optimal capital structure is the target. Recall that the market values of a company’s debt and equity are used to determine the costs of capital and the weights in the capital structure. Because market values change daily due to economic conditions, slight variations will occur in the calculations from one day to the next.
Explain how the possibility of financial distress impacts the cost of capital. Discuss the trade-offs a firm faces as it increases its leverage. Explain the concept of an optimal capital structure.
8 sie 2024 · An optimal capital structure is the best mix of debt and equity financing that maximizes a company’s market value while minimizing its cost of capital. Minimizing the weighted average cost of...
Distinguish between the two major sources of capital appearing on a balance sheet. Explain why there is a cost of capital. Calculate the weights in a company’s capital structure. The Basic Balance Sheet. In order to produce and sell its products or services, a company needs assets.
