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Problem:

Some theorist thinks that in a world of no taxes the debt to equity ratio doesn’t matter, if the objective of firm is to maximise the wealth. But, these theorists argue that in a world with tax, it is best to ‘leverage-up’ a company as high as probable. However in practice this latter argument doesn’t hold good as there are limits to the debt level which company can bear.

Required:

Illustrate the theoretical arguments of Capital Structure Decision in the World with Tax and describe the real-world influences on financial leverage of firms.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M99717

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