As a practical matter there is no way to calculate

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Unformatted text preview: ms generally try to operate in a range that places them near what they believe to be the optimal capital structure. Review Questions 12–6 What is a firm’s capital structure? What ratios assess the degree of financial leverage in a firm’s capital structure? 12–7 In what ways are the capital structures of U.S. and non-U.S. firms different? How are they similar? 12–8 What is the major benefit of debt financing? How does it affect the firm’s cost of debt? 12–9 What are business risk and financial risk? How does each of them influence the firm’s capital structure decisions? 12–10 Briefly describe the agency problem that exists between owners and lenders. How do lenders cause firms to incur agency costs to resolve this problem? 12–11 How does asymmetric information affect the firm’s capital structure decisions? How do the firm’s financing actions give investors signals that reflect management’s view of stock value? 12–12 How do the cost of debt, the cost of equity, and the we...
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