Explain how to determine the optimal capital structure of a company.

Expert Solution

The optimal capital structure is estimated by calculating the mix of debt and equity that minimizes the weighted average cost of capital (WACC) of a company while maximizing its market value. Cost of financing of both equity and debt should be low so that WACC would also be lower which results in increase in value of the firm. Under these conditions companies will have optimal capital structure.

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How do I calculate the optimal capital structure of a company?

what is optimal capital structure explain with graph

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