Debt-equity comparisons considering WACC, corporate tax, leverage, cost of debt
Fundamental of Corporate Finance
a) Why is debt a comparatively cheaper form of finance than equity?
b) If debt is cheaper than equity, why do companies approach the equity markets?
c) How can one minimize WACC when there is a constraint on raising debt? if so, how?
d) What are the effects of a corporate tax on the WACC of a business?
e) Is minimizing WACC by having a largely debt-based capital structure a high-risk strategy, given the threat of bankruptcy in an overleveraged business? Explain your answer.
f) What are the extraneous factors which impact the ability of a business to radically alter its debt-equity mix?