Question: Debt is an essential component in the optimal capital structure. Therefore, management should strive for an ideal combination of equity and debt that lessens the

Debt is an essential component in the "optimal" capital structure. Therefore, management should strive for an ideal combination of equity and debt that lessens the company's weighted average cost of capital while optimizing the company's value. Therefore, the optimal capital structure reflects a compromise between borrowing and its cost-effectiveness relative to equity and its higher cost and the costs of financial distress.

Are there any ways we can determine the optimal debt level? Explain.

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