Optimizing Capital Structure and the Level of Debt Assumption
Notwithstanding purely theoretical arguments that investors should be indifferent to capital structure, in practice the relative combination of debt and equity capital utilized in calculating the weighted average cost of capital (WACC) can have a material impact on a valuation. However, valuation analysts tend to oversimplify assumptions regarding capital structure by relying solely on public guideline companies, resulting in inaccurate valuations.
Mark B. Bober?>
CPA/ABV, CFF, CVA
Steve C. Swann?>
About the Authors
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