Similar to the net present value method, there is a formula to determine the proportions of debt and equity a firm should use to finance its assets.

Question

Quizplus · Accepted Answer

The net present value (NPV) method is used to evaluate the profitability of an investment or project, whereas determining the optimal proportions of debt and equity (capital structure) involves considerations of cost of capital, risk, and financial flexibility, without a universal formula applicable to all firms.

Similar to the Net Present Value Method, There Is a Formula