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You are an investment banker who has a meeting today. The client is

requesting your services in determining the optimal capital structure for the firms. Describe whether you would recommend that the firm choose leverage which is less than, about the same as, or greater than the average across all firms. Explain your reasoning fully.


Your afternoon meeting is with the CEO of a rubber producer. They are a mature company that uses rubber-making equipment that they have been using for quite some time. This equipment is mostly fully depreciated but still is working effectively. Pro-forma analysis of their cash flows show them to be quite stable with the following current values: EBIT is $50 million and the interest rate on debt is 5% on a $1 billion in debt. Investors do not see this business as an attractive one in the modern world but the CEO truly believes that they are undervalued. 

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Subject: Business, Finance

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