Question

Since large publicly traded companies could use both debt and equity financing, which would you recommend?

Since large publicly traded companies could use both debt and equity financing, which would you recommend?

Homework Answers

Answer #1

Large publicly traded companies use can use both debt and equity with optimum capital structure with the objective to minimize cost of capital.
When company has no debt and only equity then using debt will reduce cost of capital since interest rates are tax deductibles.
Hence value of firm will increase.
However highly leveraged publicly traded companies can use equity finance to reduce risk in the company. This can also optimize cost of capital.

Please Discuss in case of Doubt

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