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 doesn't a lower discount rate applied to the firm's cash flows increase the present value of those cash flows?

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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 doesn't a lower discount rate applied to the firm's cash flows increase the present value of those cash flows?

In Each of the Theories of Capital Structure,the Cost of Equity