Fundamentals of Financial Manageme...
Solutions
Fundamentals of Financial Manageme...
If a firm goes from zero dept to successively higher levels of debt, why would you expect its stock price to rise first, then hit a peak, and the begin to decline?
To identify: The reason of increase in stock price when capital structure changes.
Introduction:
Capital Structure:
Capital structure refers to the securities or debt included in the total capital of the firm. Adequate capital structure is required for the optimum utilization of funds.
- Increase in the proportion of debt from zero debt will have a positive effect on the stock price due to financial leverage...
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