Most favorable capital is a
capital which maximizes the worth of the company’s stock it is also with a
minimum weighted-average cost of capital generally known WACC. It does not
necessary increases or maximizes earnings per share (EPS).
Maximum earning per share (EPS) is not always achieved by attainment of the
greater stock prices. With higher debt ratio may result in maximum earning per
share (EPS), but may also increases firm’s risk level. Optimal capital structure
employed some portion of the debt, not the hundred percent (100%). Some firms
try to achieve different combination of optimal capital structure; but could not
achieve optimal capital structure.
There are many ways of the estimation of required rate of return on equity
capital (RROE); through accumulating company’s long-term cost of debt.
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