Makes financial sense for such firms to use no debt

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Reference no: EM131994301

The M& M capital structure theories in chapters 15 and 21 persuasively argue that the optimal debt is not a 0.0 % debt to equity ratio (i.e., no debt). Table 15-1 (page 609 of text) shows that, consistent with M&M theories, the average long-run debt to equity ratio in many different industries is positive (e.g., 14% for info technology, 38% for energy, and 80% for utilities). Yet some technology firms, such as Facebook, Alphabet (Google), and Apple, do not use any long-term debt or almost 0.0% LT debt. Please explain whether it makes financial sense for such firms to use no debt. You would want to use your understanding of capital structure material in chapters 15 and 21, especially signaling theory, R&D under asymmetric information theory, financial distress costs, and debt tax shield in your answers. Limit your answers to no more than ten (10) sentences.

Reference no: EM131994301

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