MANAGEMENT

Detailed explanation-1: -Optimum capital structure occurs at the point where value of the firm is highest and the cost of capital is the lowest. According to net operating income approach, capital structure decisions are totally irrelevant. Modigliani-Miller supports the net operating income approach but provides behavioural justification.

Detailed explanation-2: -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-3: -Capital Structure is an optimal mix of which one of the following options: Sales and profits.

Detailed explanation-4: -Companies should therefore borrow as much as possible. Optimal capital structure is 99.99% debt finance.

Detailed explanation-5: -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.