In 1995 an analysis of the capital structure of Reebok
In 1995, an analysis of the capital structure of Reebok provided the following results on the cost of capital and firm value.
This analysis was based on the 1995 EBIT of $420 million and a tax rate of 36.90%.
a. Why is the optimal debt ratio for Reebok so high?
b. What might be some of your concerns in moving to this optimal?
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