Please describe how changes in capital structure affect the value of the firm in a world...

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Finance

Please describe how changes in capital structure affect thevalue of the firm in a world with taxes and including the possiblecosts of financial distress. Is there an optimal capital structurefor a firm? Please discuss. Electric utilities have an average 60%debt/total capitalization ratio whereas software firms have debtratios close to zero. Why? Please explain the dividend policy thatyou would advise for a tech company to adopt that has very highbusiness risk. How do you financially evaluate an acquisition?

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The value of a firm depends on its ability to earn the profits To maximize the profits a firm tries to minimize its cost of capital The capital structure of a firm has 2 components debt and equity Cost of debt is usually less than then cost of equity as debt provides a leverage effect to the firm in the form of interest taxshield However there See Answer

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