Question

Asked Oct 29, 2019

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You are a management trainee in one of the Manufacturing companies based in Johor, Malaysia. The company was established in 2003 and recently has been listed in Bursa Malaysia. Currently, the debt-equity ratio of the company is 0.30. Your CFO's role demands him to maximize the value of the firm. Your CFO asked you that is there an easily identifiable debt-equity ratio that will maximize the value of a firm? Why or why not? He gave you a couple of days to answer this question. You need to support your answers with examples.

Step 1

It is extremely hard to measure financial cost and other direct and indirect costs; consequently distinguishing debt-equity ratio that will boost the a firm’s worth is troublesome. At the point when the economic and market conditions are considerable and positive, the organizations will in general rise its leverage. As markets are superior, organizations thrive and the organizations can support the improved leverage. Subsequently, there is no bankruptcy or cost of trouble. In this way a similar degree of leverage can be good in one sort of market conditions and can revolve unfavourable in other kind of market situations.

Step 2

For example in superior money related events it is straightforward for firms to end up being uncommonly used and in this way intensify their profits. While simulta...

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