Capital Structure Questions

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Capital Structure Short Answer Questions Read the material on capital structure as found in this link: https://www.thebalancemoney.com/an-introduction-to-capital-structure-357496 Links to an external site. (1) What is the optimal capital structure for a firm? How much debt: equity does a company use to fund its business? (2) What factors determine debt levels? (3) What factors determine equity levels?
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Optimal capital structure refers to the best blend of equity and debt financing that makes the
best use of a firm’s market value whereas minimizing its capital cost. An example of one method
used to optimize for the lowest cost blend of financing is making sure that the weighted average
cost of capital is minimized.
The ratio of best debt-to-equity ratio is usually around 1 to 1.5. Though depending on the
industry some may prefer using a debt financing that is mo...

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