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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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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 ...

Solution Summary

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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I need original notes that exceed 250 words that will help me answer the questions below:

1. Define the three conditions that make up a perfect capital market, and then compare and contrast the effects of perfect capital markets and imperfect capital markets on value. Can they create or destroy value? Explain.

2. Define EBIT and discuss why the optimal level of leverage from a tax-saving perspective is the level at which interest equals EBIT. Does this have a connection with under-leveraging corporations,both domestically and internationally?

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