Very small amount of debt is as undesirable

An optimal capital structure exists, explain the reasons. Why very small amount of debt is as undesirable as is very big amount debt?

E

Expert

Verified

Too little debt might be as undesirable similarly as too much debt since if a firm has a very conventional capital structure it could be losing the opportunity to utilize the financial leverage’s positive benefits. A corporation which has bright future is most likely not maximizing shareholder wealth when it has a very little amount of debt in the capital structure.  An extra aggressive capital structure might create additional value for the owners.

   Related Questions in Financial Management

2015 ©TutorsGlobe All rights reserved. TutorsGlobe Rated 4.8/5 based on 34139 reviews.