In your opinion is optimal capital budgeting or optimal capital structure more important to maximizing firm value?
Answer :
In my opinion opitamal capital structure is more important to maximizing firm value.
Optimal capital structure is best combination of equity & debt financing that maximize company’s market value while minimizing its cost of capital. The optimal capital structure is estimated by calculating the combination of equity & debt that minimizes the weighted average cost of capital (WACC) of company along with maximizing its market value. The lower the cost of capital, higher the present value (PV) of the firm’s future cash flows (FCF) discounted by the WACC.
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