BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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V is maximum and ko is minimum
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V is minimum and ko is maximum
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V and ko is maximum
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V and ko is minimum
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Detailed explanation-1: -The optimal capital structure of a firm is the best mix of debt and equity financing that maximizes a company’s market value while minimizing its cost of capital. In theory, debt financing offers the lowest cost of capital due to its tax deductibility.
Detailed explanation-2: -Capital Structure is an optimal mix of which one of the following options: Sales and profits.
Detailed explanation-3: -Companies should therefore borrow as much as possible. Optimal capital structure is 99.99% debt finance.
Detailed explanation-4: -Optimum capital structure (OCS) is the proportion of equity and debt a company adopts to maximize its wealth and market value and minimize its cost of capital. Thus, it is calibrated to balance the company’s worth and its cost.