THE CAPITAL STRUCTURE DECISION

The capital structure decision is essential to a company's finance. What are the competing theories? Is there an optimal capital structure in practice?



The capital structure decision is essential to a company's finance. What are the competing theories? Is there an optimal capital structure in practice?

Capital Structure Theory

The firm should earn a smallest of rate of return to cover the cost of developing capital to investment investments; otherwise, no one will be eager to purchase the firm's bonds, favored supply, and common stock.

This issue of reference, the firm's needed rate of return, is called the COST OF ...