Economics Homework Help

Theories of Capital Structure Case Worksheet

 

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Two theories of capital structure: Use the information in the following table to make a suggestation concerning the proportion of debt that the firm should utilize in its capital structure.

16.22 Two theories of capital structure: Uilg to mac gestion concerning the proportion of debt that the firm should utilize in its capital structure. Benefit or (Cost) Tax shield Agency cost Financial distress cost 25% Debt 75% Debt 50% Debt $20 -$5 $10 No Debt $ 0 -$10 $ 1 $10 -$ 5 $ 3 $30 $20 $10