Question

‘’There is an exact mix of equity and debt, at this level market value of the company is maximum’’. Explain the expression above briefly, once you have identified the related approache.

Answer 1

The above statement refers that the company have a very sounded financial governance mechanism. This means that the company is prudent and diligent in its mix of borrowings that have resulted to balance the ratio between the equity and debt of the firm. It also proves that the company has maintained consistency and transparency in its financial borrowings that have helped to balance its mix of borrowings. If the firm becomes too much leveraged by the debt, it may become a problem in the future to secure additional debt or may the cost of debt may go high. So, a sound financial governance mechanism always helps a company to balance its equity and debt borrowings that ultimately helps the market value of the firm to be at maximum.