Why too little debt is as undesirable as is too much debt, Financial Management

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If an optimal capital structure exists, what are the reasons why too little debt is as undesirable as is too much debt?

Too little debt may be as unwanted as too much debt for the reason that if a firm has a very conservative capital structures it may be losing the opportunity to reap the positive payback of financial leverage.  A company with a bright future is almost certainly not maximizing shareholder wealth if it has a very small amount of debt in its capital structure.  A huge aggressive capital structure may create more value for the owners.

 

 


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