It should be in regards to the forecasts regarding debt and equity markets. A firm more heavily exposed to debt will be exposed to the constant variable nature of that debt and other relevant debt covenants - eg over the last 5 years firms have favored debt due to cheap debt markets but are now suffering from high debt claiming high interest repayments etc. Equity is less of a drag on cash flow but can limit organizational effectiveness in regards to the greater power of shareholders.
optimal capital stucture is that where the firm value is high and the wacc of the firm is low and that capital structure a firm can follow constantly and that capital stucture not become a burdon on firm.
Capital structure is basically how the firm chooses to finance its asset, or is the composition of its liabilities. A large way of measuring capital structure is a firms debt to equity ratio - the higher this ratio is, the more leveraged (the more indebted) the firm is.
The firm is just one of those cases that is important, and that necessitates trained assistance regarding
target capital structure
the market value will remain the same or change, depending on movement of share price and the systematic risk of equity.the market may dissolve if it continious to incure more debts.
optimal capital stucture is that where the firm value is high and the wacc of the firm is low and that capital structure a firm can follow constantly and that capital stucture not become a burdon on firm.
They sometimes go together. The capital structure will be how much money is coming in. The value of the firm will include this plus how much people think of the firm.
The traditional view of a firms capital structure is the process of increasing goodwill value of the firm, while limiting the use of capital expenses and controlling capital costs. The first achieves this through materializing its limited finances through financial leverage.
There is nothing called optimal capital structure. optimal capital structure for a company refers to the composition of debt and equity, where the firm cost of capital is the lowest and value of the firm the highest. Optima capital structure for one company can not be same for the other company as well as the firms differ from each other in their basic characteristics. Even if the firm have same basic characteristics, they differ in Human resource, skill set etc.
Capital structure is basically how the firm chooses to finance its asset, or is the composition of its liabilities. A large way of measuring capital structure is a firms debt to equity ratio - the higher this ratio is, the more leveraged (the more indebted) the firm is.
The firm is just one of those cases that is important, and that necessitates trained assistance regarding
iam looking for the solution to the above question
target capital structure
Max of Economic Capital vs. Regulatory Capital + Buffer (usually defined by board)
Quoted from Wikipedia: "The basic theorem states that, in the absence of taxes, bankruptcy costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by how that firm is financed. It does not matter if the firm's capital is raised by issuing stock or selling debt. It does not matter what the firm's dividend policy is. Therefore, the Modigliani-Miller theorem is also often called the capital structure irrelevance principle."
Leasing is a substitute for debt financing, so leasing increases a firm's financial leverage.
The market value of a firm's equity increases, the cost of capital decreases.