In Each of the Theories of Capital Structure,the Cost of Equity

question 23

Essay

In each of the theories of capital structure,the cost of equity rises as the amount of debt increases.So why don't financial managers use as little debt as possible to keep the cost of equity down? After all,isn't the goal of the firm to maximize share value and doesn't a lower discount rate applied to the firm's cash flows increase the present value of those cash flows?

---

Definitions:

Competitor Standards

A benchmark or set of metrics used to compare a company's performance, products, or services against those of its competitors.

Horizontal Analysis

A financial analysis technique that compares historical financial data over a series of periods to identify trends or significant changes.

Financial Condition

Financial condition signifies the status of a company's or individual's financial health, considering assets, liabilities, and equity at a particular point in time.

Performance Across Time

An assessment of a company's financial and operational results over a specific period, highlighting trends and changes.