If a company has the optimal amount of debt, then the:Multiple Choicedebt-equity ratio is equal to 1.Value of the firm is equal to VL + TCD.value of the levered company will exceed the value of the unlevered company.direct financial distress costs must equal the present value of the interest tax shield.company has no financial distress costs.

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13-12-2022
Business

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If a company has the optimal amount of debt, then the:Multiple Choicedebt-equity ratio is equal to 1.Value of the firm is equal to VL + TCD.value of the levered company will exceed the value of the unlevered company.direct financial distress costs must equal the present value of the interest tax shield.company has no financial distress costs.

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Tutorconsortium434 Tutorconsortium434 · Answer 1 · 2022-12-17T07:40:54+01:00

If a company has the optimal amount of debt, then the value of the levered company will exceed the value of the unlevered company. This is because the optimal level of debt for a company is the level of debt that maximizes the value of the firm.

What is the advantage and disadvantage for the same?

When a company has the optimal level of debt, it can take advantage of the tax benefits of debt, which can increase the value of the firm by reducing the company's effective tax rate. However, if a company has too much debt, it may face financial distress costs, which can decrease the value of the firm. The debt-equity ratio, which is the ratio of a company's total debt to its total equity, does not necessarily have to be equal to 1 for a company to have the optimal level of debt.

What debt to equity ratio is ideal?

The best combination of debt and equity financing that increases market value while lowering a company's cost of capital is known as an optimal capital structure. One strategy for aiming for the lowest cost mix of financing is to minimize the weighted average cost of capital (WACC).

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