Capital structure is the mix of a firm's long-term debt and equity. Expected returns and value (or
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Capital structure is the mix of a firm's long-term debt and equity. Expected returns and value (or interest rates and asset prices) move inversely. The optimal capital structure results in the minimum cost of capital, which is necessary to maximize shareholder wealth.
Marie LeBlanc is considering adding drilling rigs to her fleet of workover rigs. The drilling rigs are significantly more expensive and will require Ms. LeBlanc to consider raising additional capital. She has a choice of debt or equity or a mix of the two. How would you, as her CFO, explain the factors of flexibility and timing on the mix between the debt and equity capital?
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