0
target capital structure
Wiki User
∙ 11y ago
Add your answer:
Earn +20 pts
How would you identify the optimal cost of capital for an organization?
To identify the optimal cost of capital for an organization the cost of debt and equity is needed. The preferred stock is also needed.
Debt equity ratio tells about what?
debt equity ration
How can you control your debt ratio and debt to equity ratio?
how to control debt equity ratio
The optimal capital structure is that structure which?
Under different theory, things differ a lot. Perhaps there's no optimal capital structure in pecking-order theory but in reality most companies set a target debt-to-equity (D/E) ratio. Anyway, let's focus on trade-off theory first. Trade-off theory argues that there's an optimal amount of debt of each firm. At this level of debt, firms can take the most advantage of debts. Debts can be tax shield so that they can save money for firms to reinvest in other projects so as to earn more profits. However, debts can be quite dangerous because highly leveraged firms may face bankruptcy and financial distress costs (no matter they're direct or indirect) may increase the cost of debt of the company. Therefore, there must be a level of debt that make the benefits of debt and potential danger of debt offset each other. In another word, the marginal revenue of debt equals the marginal cost of debt. But remember, the real cases are not as easy as we put here. You can learn more on your corporate finance class and good luck to you!
What term describes the result of trading a percentage of ownership in a company to an investor in exchange for money?
Debt
What is the total debt of 1233837 and total assets of 2178990 what is the firms debt to equity ratio?
Debt equity ratio = total debt / total equity debt equity ratio = 1233837 / 2178990 * 100 Debt equity ratio = 56.64%
What is the ebit-eps indifference point?
The EBIT-EPS indifference point is a calculation used in determining optimal capital structures. What that means is firms typically finance their operations with two primary means, equity and debt. Back to the indifference point, algebraically and graphically when the earnings per share for debt and equity financing alternatives are equal, you have the EBIT-EPS indifference point. Put another way a firm can finance their operations at the same cost, with either debt or equity, at the indifference point. EPS (debt financing) = EPS (equity financing)
What is the ebit eps indifference point?
The EBIT-EPS indifference point is a calculation used in determining optimal capital structures. What that means is firms typically finance their operations with two primary means, equity and debt. Back to the indifference point, algebraically and graphically when the earnings per share for debt and equity financing alternatives are equal, you have the EBIT-EPS indifference point. Put another way a firm can finance their operations at the same cost, with either debt or equity, at the indifference point. EPS (debt financing) = EPS (equity financing)
How would you identify the optimal cost of capital for an organization?
To identify the optimal cost of capital for an organization the cost of debt and equity is needed. The preferred stock is also needed.
Why does the weighted average cost of capital of firms that uses more debt capital lower that that of a firm that uses less debt capital?
Because the cost of debt is generally lower than the cost of equity. This is because in case of financial distress, debt-holders are repaid before the equity holders are, as well as because debt has the assets of the firm as collateral and equity does not.
What is the mix of optimal capital structure?
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.
What is near equity?
Near-equity investments consist of debt that is convertible to equity and debt with warrants, royalties or participation payments. Near-equity can be structured to act like equity, with deferred payments that give young firms the patient capital they need in their early years. http://www.frbsf.org/publications/community/review/122006/rubin.pdf
When a firm initially substitutes debt for equity financing what happens to the cost of capital and why?
When a firm substitutes debt for equity financing, the cost of capital generally decreases. This is because debt financing is typically cheaper than equity financing, as interest payments on debt are tax-deductible, while dividends on equity are not. By substituting debt for equity, the firm reduces its overall cost of capital and improves its financial position.
Debt equity ratio tells about what?
debt equity ration
How can you control your debt ratio and debt to equity ratio?
how to control debt equity ratio
4 How do taxes affect the choice of debt versus equity?
Taxes can impact the choice of debt versus equity financing for businesses. Interest expenses on debt can be tax deductible, decreasing the overall tax burden. This makes debt financing more attractive for companies as it lowers their taxable income. Equity financing, on the other hand, does not offer the same tax benefits, which may influence businesses to choose debt financing over equity.
Breckenridge Ski Company has total assets of 422235811 and a debt ratio of 29.5 percent Calculate the companys debt-to-equity ratio and the equity multiplier?
What is given is: total assets = $422,235,811 Debt ratio = 29.5% Find: debt-to-equity ratio Equity multiplier Debt-to-equity ratio = total debt / total equity Total debt ratio = total debt / total assets Total debt = total debt ratio x total assets = 0.295 x 422,235,811 = 124,559,564.2 Total assets = total equity + total debt Total equity = total assets - total debt = 422,235,811 - 124,559,564.2 = 297,676,246.8 Debt-to-equity ratio = total debt / total equity = 124,559,564.2 / 297,676,246.8 = 0.4184 Equity multiplier = total assets / total equity = 422,235,811 / 297,676,246.8 = 1.418
