Asked by Lyman Gillen on Jun 25, 2024
Verified
When a firm is operating at its target capital structure point, the debt-equity ratio is equal to 1.
Target Capital Structure
The optimal mix of debt, preferred stock, and common equity that a company aims to maintain for financing its operations.
Debt-equity Ratio
A gauge of how shareholders' equity and debt proportionately finance a company’s assets.
- Understand the consequences of targeting a particular capital structure on the organization's worth and its WACC.
Verified Answer
BB
Buyanaa BoldbaatarJun 30, 2024
Final Answer :
False
Explanation :
The target capital structure of a firm is unique to that firm and depends on its specific financial strategy, risk tolerance, and business model. A debt-equity ratio of 1 is not a universal target; some firms may target a higher or lower ratio based on their objectives and industry standards.
Learning Objectives
- Understand the consequences of targeting a particular capital structure on the organization's worth and its WACC.
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