Weighted Average Cost of Capital (WACC) theory suggests there is an optimal capital structure.   Discuss this statement to include an explanation of: What is meant by ‘capital structure’. How changes in capital structure effect WACC The relationship of WACC to the market value of a company

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Chapter14: Security Structures And Determining Enterprise Values
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  1. Weighted Average Cost of Capital (WACC) theory suggests there is an optimal capital structure.

 

Discuss this statement to include an explanation of:

  • What is meant by ‘capital structure’.
  • How changes in capital structure effect WACC
  • The relationship of WACC to the market value of a company
  • The traditional view of the optimum gearing ratio.

             You may find graphical illustration(s) can support your discussion.

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