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Optimal Fraction of Debt

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Define the optimal fraction of debt and the growth rate of a firm. What is the relationship between the two?

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This solution explains the optimal fraction of debt and growth rate of a firm. The relationship between both elements is also discussed.

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The optimal fraction of debt has an inverse relationship with a firm. As the firm grows larger, the optimal fraction of debt decreases. When the firm is smaller, the optimal fraction of debt remains large because the firm relies more ...

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