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Question: Do you think there is an ideal mix of debt and equity across corporations? Elaborate your answer.

Question: Do you think there is an ideal mix of debt and equity across corporations? Elaborate your answer.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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DIRECTIONS. Analyze the situation and answer the question on a separate sheet of раper. One of the VP for Finance of the Financial Manager is to determine the appropriate capital structure of the company. To illustrate, show/draw the figure below: Sample Capital Structure 100% 75% Equity 50% Assets 25% Liabilities 0% Total Assets Total Structure - In the figure above, the total assets are financed by 60% debt and 40% equity. Accordingly, the capital structure is 60% debt and 40% equity. Question: Do you think there is an ideal mix of debt and equity across corporations? Elaborate your answer. Note: • Remember that Assets = Liabilities + Owner's Equity. To be able to acquire assets, our funds must have come somewhere. If it was bought using cash from our pockets, it is financed by equity. On the other hand, if we used money from our borrowings, the asset bought is financed by debt.
Transcribed Image Text:DIRECTIONS. Analyze the situation and answer the question on a separate sheet of раper. One of the VP for Finance of the Financial Manager is to determine the appropriate capital structure of the company. To illustrate, show/draw the figure below: Sample Capital Structure 100% 75% Equity 50% Assets 25% Liabilities 0% Total Assets Total Structure - In the figure above, the total assets are financed by 60% debt and 40% equity. Accordingly, the capital structure is 60% debt and 40% equity. Question: Do you think there is an ideal mix of debt and equity across corporations? Elaborate your answer. Note: • Remember that Assets = Liabilities + Owner's Equity. To be able to acquire assets, our funds must have come somewhere. If it was bought using cash from our pockets, it is financed by equity. On the other hand, if we used money from our borrowings, the asset bought is financed by debt.
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