Kauer, a senior at UMB College of Management, has been registered for a financial management course and
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Question:
Kauer, a senior at UMB College of Management, has been registered for a financial management course and sought help from a tutor. During their conversations about the business risk and the optimal capital structure of a firm, the tutor made the following statement:
The main factors that affect the business risk are the ability to adjust output prices and operating leverage and business risk is the uncertainty regarding the net income of a firm. For a levered firm 40/60 debt to equity ratio is the optimal capital structure, which always maximizes the value of a firm.
Do you agree or disagree with the tutor's statement? Briefly explain.
Related Book For
Personal Financial Planning
ISBN: 978-1305636613
14th edition
Authors: Randy Billingsley, Lawrence J. Gitman, Michael D. Joehnk
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