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.
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It 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.
If you have zero operating income (EBIT), why would you want to borrow money in the first place. Your optimal debt ratio is zero.
Aswath, 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 (post-money) will likely become larger, else no one will be ready to fund.