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Essay Details:
Essay text:
The wealth of the stock holders is maximized when the net (residual) market value of the firm is maximized. Can a firm’s value be increased by the mix of debt and equity?
WACC declines as a firm uses more debt: the combined benefits of using more but cheaper debt and interest tax shield are greater than the use of less but increasingly more expensive equity. Therefore
The company should borrow as much as it could as long as its ROA > cost of debt.
But high debt reliance may be negative because of:
Increased probability of bankruptcy
a business risk (inability to meet operating costs)
a financial risk (inability to meet finance costs)
costs of debt
Costs incurred when borrowers implementing operating and financial constraints imposed by lenders...
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Common topics in this essay:
- DEBT-EQUITY MIX SIMULATION
- Debt & Equity Instruments
- Debt Equity Mix
- Debt Equity Of India,Us,Uk
- Debt Market
- Debt Or Equity
- Debt Vs. Equity Financing
- Debt vs Equity Instruments
- Debt-Equity Mix Simulation Summary
- Determining the Debt-Equity Mix Summary
- Equity Market Project
- Stock Market
- stock market and wealth effect
- stock market
- Study Of Relationship Between Foreign Exchange Market &Amp;Amp; Stock Market
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