MANAGEMENT

Detailed explanation-1: -Key Takeaways An optimal capital structure is the best mix of debt and equity financing that maximizes a company’s market value while minimizing its cost of capital. Minimizing the weighted average cost of capital (WACC) is one way to optimize for the lowest cost mix of financing.

Detailed explanation-2: -Generally, a good debt ratio is around 1 to 1.5. However, the ideal debt ratio will vary depending on the industry, as some industries use more debt financing than others. Capital-intensive industries like the financial and manufacturing industries often have higher ratios that can be greater than 2.

Detailed explanation-3: -The Owner’s Fund is a permanent source of investment for a business that remains with the company till it winds up its operations. The Borrowed Fund is a temporary source of investment for a business that is paid back to the creditors after the completion of a specific period of time.

Detailed explanation-4: -Leverage is an investment strategy of using borrowed money-specifically, the use of various financial instruments or borrowed capital-to increase the potential return of an investment. Leverage can also refer to the amount of debt a firm uses to finance assets.