Podcast
Questions and Answers
What is the relationship between the cost of debt and the cost of equity according to the traditional approach?
What is the relationship between the cost of debt and the cost of equity according to the traditional approach?
What is the primary goal of a firm's capital structure according to the traditional approach?
What is the primary goal of a firm's capital structure according to the traditional approach?
What is the effect of financial leverage on a firm's weighted average cost of capital according to the traditional approach?
What is the effect of financial leverage on a firm's weighted average cost of capital according to the traditional approach?
What is the shape of the curve of the average cost of capital in Figure 18-1?
What is the shape of the curve of the average cost of capital in Figure 18-1?
Signup and view all the answers
What is the relationship between a firm's capital structure and its market value according to the traditional approach?
What is the relationship between a firm's capital structure and its market value according to the traditional approach?
Signup and view all the answers
What is a major determinant of capital structure decisions if equity shareholders want to maintain control?
What is a major determinant of capital structure decisions if equity shareholders want to maintain control?
Signup and view all the answers
What is the risk referred to when debt is used in capital structure decisions?
What is the risk referred to when debt is used in capital structure decisions?
Signup and view all the answers
When is debt financing preferable to equity financing from an EPS point of view?
When is debt financing preferable to equity financing from an EPS point of view?
Signup and view all the answers
What happens to ROE when the ROA is less than the cost of debt?
What happens to ROE when the ROA is less than the cost of debt?
Signup and view all the answers
Why do cost of different components of capital influence capital structure decisions?
Why do cost of different components of capital influence capital structure decisions?
Signup and view all the answers
