Determinants and benefits of Optimal Capital Structure
Not what you're looking for?
What external factors affect the optimal capital structure?
What is the benefit of being at the optimal capital structure?
Purchase this Solution
Solution Summary
The solution explains various factors affecting the choice for optimal capital stucture and how the optimal capital struture helps the organizations. The solution has approx 400 words and presents examples of various situations.
Solution Preview
External factors include macro-economic factors
In good economic times, firms will generate higher earnings and be able to service more debt. In recessions, earnings will decline and with it the capacity to service debt. In fact, both the level of risk-free rate and the magnitude of default spreads can affect optimal debt ratios.
(a) Level of Interest Rates
As interest rates decline, debt becomes cheaper and more attractive. While this may seem intuitive, the effect is muted by the fact that lower interest rates also reduce the cost of equity. In fact, changing the risk-free rate has a ...
Purchase this Solution
Free BrainMass Quizzes
Academic Reading and Writing: Critical Thinking
Importance of Critical Thinking
Introduction to Finance
This quiz test introductory finance topics.
MS Word 2010-Tricky Features
These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.
Six Sigma for Process Improvement
A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.
Production and cost theory
Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.