Question
The target capital structure is defined as the average capital structure weights (based on market values) that a company will have during the future, which
The target capital structure is defined as the average capital structure weights (based on market values) that a company will have during the future, which should be the weights that minimize the companys WACC. MicroDrive has chosen a target capital structure composed of 4% short-term debt, 20% long-term debt, 2% preferred stock, and 74% common equity. MicroDrive presently has more debt and preferred stock in its actual capital structure (using either book values or market values), but it intends to move toward its target capital structure in the near future. Please discuss how the move toward target capital structure may be achieved?
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