Under the moderate view of capital structure theory, explain the relationship that exists between a company's capital structure and its weighted average cost of capital
Under the moderate view of capital structure theory, explain the relationship that exists between a company's capital structure and its weighted average cost of capital
The relationship between a company's capital structure and its weighted average cost of capital is that the weighted average cost of capital is the minimum rate of return that a company must earn on its investment in order to satisfy its creditors and equity investors. The weighted average cost of capital is determined by the company's capital structure, which is the mix of debt and equity that the company uses to finance its operations.
The relationship between a company's capital structure and its weighted average cost of capital is as follows:
1. A company's weighted average cost of capital is determined by its capital structure.
2. The weighted average cost of capital represents the minimum return that a company must earn on its investments in order to satisfy its financial obligations.
3. A company's capital structure affects its weighted average cost of capital because it determines the mix of debt and equity financing that the company uses to finance its operations.
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