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Unformatted text preview: Phase 3 Discussion Board Finding the ideal capital structure can be quiet a tricky task, but most companies find it by using the WACC. As we have previously discussed the WACC associates the equity or the cost and debt amount that is currently being used to fund its current projects (WACC-Weighted Average Cost of Capital, n.d.). With debt, ownership is not diluted which gives rise to debt having a lower cost. Share or equity holders may require a higher rate than would be charged as interest on debt since they stand to lose their own personal money if the company were to fail. Another reason that debt is cheaper is because the interest that is paid on the debt can be deducted as a business expense. The greatest benefit of using debt is the tax deductible interest expense simply because a company cannot deduct the cost of equity. Both the debt to capital ratio and the debt to equity ratio would be affected by debt. The debt to equity ratio is an indicator of the companys leverage as it compares what the company...
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This note was uploaded on 06/01/2010 for the course ACCT 624 taught by Professor Krisbrand during the Spring '10 term at Colorado Technical University.
- Spring '10
- Cost Accounting