Nisha sharma Asked a Question
October 16, 2021 9:50 ampts 30 pts
e cost of equity (K) increases. Assumptions The rate of interest on debt remains constant for a certain period and thereafter with an increase inleverage. The expected rate by equity remains constant or increase gradually. After that, the equity shareholders start perceiving a financial risk and then from the optimal point and the expected rate increases speedily. Asa result of the activity of rate of interest and expected rate of return, the WACC first decreases and then increases. The lowest point on the curve is optimal capital structure. Cost of Equity (K) Cost of capital WACC (K) /Cost of Debt (K) Optimum Level of Capital Degree of Leverage Fig. WACC and Optimum Leverage Pproach to capital theory, devised in the 1050n
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  • Priya sarda thankyou
    What Is Optimal Capital Structure? 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...
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