Consider a change to the tax law that allows a company to increase its depreciation charges. According to the static theory of capital structure, the optimal level of debt should be lower than it was before the change.

True or False?

Question

Sara Dixon

Business

14 May, 18:55

Consider a change to the tax law that allows a company to increase its depreciation charges. According to the static theory of capital structure, the optimal level of debt should be lower than it was before the change.

True or False?

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Answers (1)

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Obie · Answer 1

True

Explanation:

Capital Structure can be defined as the relationship between the various longterm sources financing which are; equity capital, preference share capital and debt capital.

To maximize the intrisic value of a firm, The cost of capital structure must be reduced to the lowest level. by so doing, the optimal capital structure is archived.

Optimal capital structure is the combination of debt and equity that leads to the maximum value of the firm.

Consider a change to the tax law that allows a company to increase its depreciation charges. According to the static theory of capital structure, the optimal level of debt should be lower than it was before the change.True or False?

Consider a change to the tax law that allows a company to increase its depreciation charges. According to the static theory of capital structure, the optimal level of debt should be lower than it was before the change.

True or False?