In each of the theories of capital structure the cost of equity rises as the amount of debt increases. So why don’t financial managers use as little debt as possible to keep the cost of equity down? After all, isn’t the goal of the firm to maximize share value and minimize shareholder costs?

In each of the theories of capital structure the cost of equity rises as the amount of debt increases. So why don’t financial managers use as little debt as possible to keep the cost of equity down? After all, isn’t the goal of the firm to maximize share value and minimize shareholder costs?

Foundations of Business - Standalone book (MindTap Course List)

4th Edition

ISBN:9781285193946

Author:William M. Pride, Robert J. Hughes, Jack R. Kapoor

Publisher:William M. Pride, Robert J. Hughes, Jack R. Kapoor

Chapter15: Using Management And Accounting Information

Section: Chapter Questions

Problem 16CC

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Question

In each of the theories of capital structure the cost of equity rises
as the amount of debt increases. So why don’t financial managers use
as little debt as possible to keep the cost of equity down? After all,
isn’t the goal of the firm to maximize share value and minimize
shareholder costs?

Approach to decide on the efficient procurement and investment of funds for the day-to-day operations of a business. Financial management aims at profit maximization, and it includes financing and capital budgeting.

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