Question

Although tax laws can change, and firm’s can change their operations and/or modes of financing, the determination of the firm’s optimal capital structure is a relatively simple process.
True or False

Answer 1

The Correct answer is False

The Optimal Capital sturcture is the mix of the financing methods that the company uses to raise the capital, Usually, it is the mix of debt and the equity. The Company has to pay the required return to the shareholders and the debtholders in return, which is referred as the cost of capital. If it is lower then it is beneficial for the company. But, Acheiving the Optimal Capital structure is Difficult because it is affected by the tax rate, external factors etc.