Unformatted text preview: at favorable rates
depends on the external risk assessments of lenders and bond raters.
The firm must therefore consider the impact of capital structure
decisions both on share value and on published financial statements
from which lenders and raters assess the firm’s risk. Timing At times when the general level of interest rates is low, debt financing might be more attractive; when interest rates are high, the sale of
stock may be more appealing. Sometimes both debt and equity capital become unavailable at what would be viewed as reasonable
terms. General economic conditions—especially those of the capital
market—can thus significantly affect capital structure decisions. Agency costs Asymmetric information Review Questions
12–14 Why do maximizing EPS and maximizing value not necessarily lead to
the same conclusion about the optimal capital structure?
12–15 What important factors in addition to quantitative factors should a firm
consider when it is making a capital structure decision? CHAPTER 12 Leverage and Capital Structure 543 S U M M A RY
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