A nonoptimal capital structure may lead to higher financing costs.

Question

Quizplus · Accepted Answer

A nonoptimal capital structure means that a company has not found the most efficient mix of debt and equity financing. This can lead to higher financing costs as the company may be paying higher interest rates on its debt, or may have to issue more shares at a lower price to raise equity capital. This can ultimately result in a lower return on investment for shareholders.

A Nonoptimal Capital Structure May Lead to Higher Financing Costs