The factors that are listed below raise some interesting thoughts. If you were calling the shots for any organization where would you focus your attention?
Management Attitudes: There is room for managerial judgment (i.e., tastes and preferences) in determining a firm's optimal capital structure. Where do you stand on this issue?
Growth Rate: lower flotation costs favor the use of debt, but higher uncertainty favors the use of equity.
Firm's Internal Conditions: the choice of debt or equity can be influenced by whether management thinks the firm is overvalued or undervalued by the market.
Considering the obligation to payback your debt or use equity to finance capital projects...what would you do?
Let us take each point one by one:
? Management Attitudes?there is room for managerial judgment (i.e., tastes and preferences) in determining a firm's optimal capital structure.
If management is conservative, than it ...
This brief solution provides comments on each variable of management attitudes, growth rate and the firm's internal conditions and also gives advice on how to payback debt.