$15.00 FIN 101, Week 6 - Help
You are the chief operating officer for a firm that manufactures tennis racquets that are in high demand. Your company owns the patent rights for the tennis racquets. The firm is a tax-paying, for-profit firm subject to debt default and bankruptcy law. In the past, the company has met its financing needs through a combination of common stocks and bonds. Additional funds are needed to take advantage of the company’s growth potential, and you need to determine the most advantageous mixture of stocks and bonds to use to obtain the needed funds.
Assuming the static theory of capital structure, write a brief essay (suggested length of 1–2 pages) in which you describe how to determine the optimal capital structure for the situation described above. In your essay:
A. Define the variables you must consider in applying the static theory of capital structure.
B. Describe the general steps used to determine the optimal capital structure in the situation outlined above.
C. Discuss the relationship between the variables that will exist at the optimal debt-to-equity ratio.
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