Vidyalelo
Commerce · Q66

Financial Management

Graduate and Post Graduate · Commerce · question 66

Q66

According to the traditional approach cost of capital affected by?

A.
debt-equity mix
Answer
B.
debt-capital mix
C.
equity expenses mix
D.
debt-interest mix

Answer: Option A

Solution

Answer: Option A
Solution:
The traditional approach to capital structure advocates that there is a right combination of equity and debt in the capital structure, at which the market value of a firm is maximum. As per this approach, debt should exist in the capital structure only up to a specific point, beyond which, any increase in leverage would result in the reduction in value of the firm.