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Having covered to the large extent of the corporate financing mix between debt and equity, there...

Having covered to the large extent of the corporate financing mix between debt and equity, there are still a lot of questions asked about what the right choices will be. Some finance managers conclude that the right choice should be able to answer the following 3 questions: Does the company’s financial policy create value to the firm? Does the company’s financial policy create competitive advantage? Does the company’s financial policy sustain senior management’s visions? Do you agree with the above hypothesis and why?

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A right mix between equity and debt is an essential part of financial management. The outcome of choosing the right mix I believe can be concluded by using the above questions. The primary reason being any financial decision taken by the company must create value to the shareholder and maximize their wealth. Also, the company’s WACC must in line with the average industry trends else it will end up spending more on maintaining the capital. Lastly, the financial decisions must be in line with the management’s goals and vision.

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