Study guide to determining the cost of capital 4 optimal capital structure

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Cost of capital#4 – Optimal Capital StructureStudy Guide to Determining the Cost of Capital.Bachelor’s Degree in Finance and BankingIntroductionA company can be financed with own resources (capital) or with those obtained inloan (liabilities). The ratio of one source to another is what we define as acapitalstructure, thatis, the specific mix of long-term debt and capital that the companyuses to finance its operations. As a result, several methodologies have beendeveloped to determine the optimal capital structure of a company.Theories on optimal structureIt is not yet possible to provide financial managers with a specific methodology fordetermining an optimal structure; however, financial theory helps to understand howthe chosen funding mix affects the value of an organization. Its purpose is torecognize that not only do investment decisions create wealth, but it is also generatedby the way they are financed.There are several theories that study the optimal structure of companies; throughthem, it has been sought to define and explain the elements that determine it fromdifferent perspectives and considerations.The starting assumptions to be able to analyze the effect of the financial structureon the value of the company are the following:∙ Economic risk remains constant.∙ The company is in a situation of non-growth.∙ The economic-financial environment remains stable.∙ No reserves are provided.∙ Net profit is potentially distributable am … Purchase document to see full attachment

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