What is a good capital structure? Are low debt ratios always favorable?
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- Is there an easily identifiable debt-equity ratio that will maximize the value of a firm? Why or why not? You need to support your answers with examples.what happens to the cost of debt if the pourcentage of debt gets lower in the capital structureWhy is there a positive leverage from use of debt? How can we tell that?
- Critically discuss over-investment and under-investment problems due to debt usage. What kinds of capital structures could prevent such problems?Is it better to finance a company thru debt or thru equity? Why? What are the downside and upside to each?Profitability index: What is the profitability index, and why is it helpful in the capital rationing process?
