A community for students.
Here's the question you clicked on:
 0 viewing
Tara
 5 years ago
I am trying to calculate the optimal capital structure of a firm. The company i am using has zero EBIT value,how can i go about it.
Tara
 5 years ago
I am trying to calculate the optimal capital structure of a firm. The company i am using has zero EBIT value,how can i go about it.

This Question is Closed

anonymous
 5 years ago
Best ResponseYou've already chosen the best response.0It can be chosen according to industry average but you must care for a size of predicted EBITs. The predicted values of EBIT couldn't be lower than interest expenses on debt.

anonymous
 5 years ago
Best ResponseYou've already chosen the best response.0Tara, If you have zero operating income (EBIT), why would you want to borrow money in the first place. Your optimal debt ratio is zero.

anonymous
 5 years ago
Best ResponseYou've already chosen the best response.0Aswath, I see your point and agree. To get funding, the firm (not Tara) should issue equity, by diluting the current owner's share of the pie. However the pie (postmoney) will likely become larger, else no one will be ready to fund.

anonymous
 5 years ago
Best ResponseYou've already chosen the best response.0I got it.The optimal debt ratio is zero because there is no tax benefit from borrowing money, if you do not have a positive operating income.
Ask your own question
Sign UpFind more explanations on OpenStudy
Your question is ready. Sign up for free to start getting answers.
spraguer
(Moderator)
5
→ View Detailed Profile
is replying to Can someone tell me what button the professor is hitting...
23
 Teamwork 19 Teammate
 Problem Solving 19 Hero
 Engagement 19 Mad Hatter
 You have blocked this person.
 ✔ You're a fan Checking fan status...
Thanks for being so helpful in mathematics. If you are getting quality help, make sure you spread the word about OpenStudy.