Capital structure and degree of leverage analyses

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Reference no: EM131070918

Which of the following are practical difficulties associated with capital structure and degree of leverage analyses?

a. It is nearly impossible to determine exactly how P/E ratios or equity capitalization rates (rs values) are affected by different degrees of financial leverage.

b. Managers' attitudes toward risk differ and some managers may set a target capital structure other than the one that would maximize stock price.

c. Managers often have a responsibility to provide continuous service; they must preserve the long-run viability of the enterprise. Thus, the goal of employing leverage to maximize short-run stock price and minimize capital cost may conflict with long-run viability.

d. All of the above.

e. None of the above represent a serious impediment to the practical application of leverage analysis to capital structure determination.

Reference no: EM131070918

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