15.4 Making Financing Decisions
We have just learned that there can be costs and benefits associated with including more debt in a firm’s capital structure. To determine the optimal capital structure for the firm, the financial manager must weigh these benefits and costs to come up with an appropriate level of debt. As part of this process, the financial manager will typically compare the firm’s capital structure to that of similar firms. In addition, the financial manager will consider the effect of financing alternatives on the level and volatility of the firm’s reported earnings per share (EPS) and also on its risk of default.
Benchmarking the Firm’s Capital Structure
When benchmarking a firm’s capital structure, we compare the firm’s current ...
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