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What is Aim of Target Capital Structure
To maximize the price of the stock one has to
strike a balance between risk and return. The target capital structure aims at
this goal. One has to understand the factors that influence capital structure decisions. To name few
If the firm uses debt the
business risk is
inherent in the firms operations. The greater the firms
business risk, the lower the amount of debt that is optimal. Managerial attitude (conservatism or aggressiveness) with regard to borrowing. Some managers are more aggressive than others, hence some firms are more inclined to use debt in an effort to boost profits. This factor does not affect the optimal, or value- maximizing, capital structure, but it does influence the target capital structure a firm actually establishes.
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