Optimal Capital Structure

(Bobby shan, Karachi)

Most favorable capital is a capital which maximizes the worth of the company’s stock it is also with a minimum weighted-average cost of capital generally known WACC. It does not necessary increases or maximizes earnings per share (EPS).

Maximum earning per share (EPS) is not always achieved by attainment of the greater stock prices. With higher debt ratio may result in maximum earning per share (EPS), but may also increases firm’s risk level. Optimal capital structure employed some portion of the debt, not the hundred percent (100%). Some firms try to achieve different combination of optimal capital structure; but could not achieve optimal capital structure.

There are many ways of the estimation of required rate of return on equity capital (RROE); through accumulating company’s long-term cost of debt.

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Bobby shan
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