Problem
In this case you will evaluate the optimal capital structure for American Home Products {AHP}. As you know from the theory of capital structure, some of the effects of capital structure can be easily quantified, while others cannot. In your analysis of the capital structure decision, you should attempt to quantify the effects as much as possible. You should also qualitatively discuss the effects that cannot be quantified. The analysis of the case requires creativity in finding ways to quantify the different effects and in finding the right balance between the quantitative arguments and the qualitative ones to form a sensible View of the optimal capital structure of the firm.
Here are some points you may want to address in your analysis. (As always, your report should not be written in the form of answers to these questions or be confined to these issues only. Rather, the report should be a complete review of the situation analyzed and address all points believed to be important for the analysis.)
Comment on the current capital structure policy of AHP. Is this policy driven by any of the theories of capital structure that we know of?