In each of the theories of capital structure the cost of equity rises as the amount of debt increases. So why don't financial managers use as little debt as possible to keep the cost of equity down?
After all,isn't the goal of the firm to maximize share value and minimize shareholder costs?

Question

In each of the theories of capital structure the cost of equity rises as the amount of debt increases. So why don't financial managers use as little debt as possible to keep the cost of equity down?
 After all,isn't the goal of the firm to maximize share value and minimize shareholder costs?

Quizplus · Accepted Answer

The Answer of In each of the theories of capital structure the cost of equity rises as the amount of debt increases. So why don't financial managers use as little debt as possible to keep the cost of equity down?
 After all,isn't the goal of the firm to maximize share value and minimize shareholder costs?

In Each of the Theories of Capital Structure the Cost