Capital Structure Decisions

Question 1

What is an optimal capital structure

Answer 1

the point where the value of shareholders are maximized and cost of capital is minimized

Question 2

What is the impact of risk

Answer 2

debt - cheapest option but too much debt increases leverage and this causes more risks to shareholders

Question 3

What is the WACC

Answer 3

= D/V(Rd)(1 – T) + P/V(Rp) + E/V(Re)