I agree that if the company increases the amount of debt, it will be able to lower its cost of capital this is because debt financing tend to have tax advantages over the equity financing. The interest expenses of the debt tend to be tax deductible and this helps to reduce the cost of debt capital. If the amount of debt is increased form from 40% its evident form the WACC calculations that that the cost of capital will reduce from 3.99% to 3.96%.
Advice to the CEO
I would advise the CEO to adopt an optimal capital structure by looking for a structure that offers an ideal balance between debts and equity and one that will minimize the
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.Read more
Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.Read more
Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.Read more
Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.Read more
By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.Read more