having more debt relative to equity in the capital structure is good for shareholders at the time select one: a. when interest rates are rising. b. when the economy is in a recession. c. when their company is making lots of profit. d. when their company is experiencing losses.

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justinrys3946 justinrys3946

10-11-2022
Business

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having more debt relative to equity in the capital structure is good for shareholders at the time select one: a. when interest rates are rising. b. when the economy is in a recession. c. when their company is making lots of profit. d. when their company is experiencing losses.

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contexto115 contexto115 · Answer 1 · 2022-11-15T08:46:07+01:00

Having more debt relative to equity in the capital structure is good for shareholders at the time when their company is making lots of profit.

Capital structure makes economic sense for the firm to strive to minimize the cost of using financial capital.The optimal capital structure of a firm is often defined as the proportion of debt and equity that result in the lowest weighted average cost of capital (WACC) for the firm.

In order to optimize the structure, a firm will decide if it needs more debt or equity and can issue whichever it requires. The new capital that's issued may be used to invest in new assets or may be used to repurchase debt/equity that's currently outstanding as a form or recapitalisation.

Thus,option (c) is correct when their company is making lots of profit.

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