Question
Q#3. The M& M capital structure theory in chapter 15 persuasively argues that the optimal debt is not a 0.0 % debt to equity ratio
Q#3. The M& M capital structure theory in chapter 15 persuasively argues that the optimal debt is not a 0.0 % debt to equity ratio (i.e., firms should use some debt). The chapter 15 shows that, consistent with M&M theories, the average long-run debt to equity ratio in many different industries ranges from 23% to 177%. Yet some technology firms, such as Microsoft, google, and Apple, do not use any long-term debt or almost 0.0% long-term debt. Please explain whether it makes financial sense for such firms to use no debt. You would want to use your understanding of capital structure material in chapter 15, especially signaling and asymmetric information theories, in your answers. Limit your answers to no more than ten (10) sentences.
Textbook: Financial Management: Theory and Practice, by Brigham and Ehrhardt 14th Ed.
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