Why fociss on the eptinsal capital structure? optirtal capitial structure; it w also the debt-equity moc that maxamuacs the firm's weiphted awnage cest of capital. makamires the firm's druidends. manumuses the firmis weighited overage cost of capital. Haximuzes the comporiy's net incume Understanding the impact of alebt in the capital structure. Suppose you are conducting a workshop on copital structure decinions and you wane to highlight certan key asues related th captal struztirk Fou assistant has made a list of points for your session, bet be thinks he might hove made some mibtalues. Peview that lest and identify which items are correct check wit that apribi ard common shareholders. The pre-tax cost af debt incieases as a firmin risk of bankruptcy increises. Ar incrnase in delit financing beyond a certan joint is labty to increase a fim's cocr of equaly. Aisks of barkruptry incrabse mahagenent's speralitg oe peiquastes and whrease apeucy costs Af increase in debt fenansing decreases thet risk of bankruptey. In 1958 Franco Misdighani and Merton Miller (MM) published a set of rewearch papers that revolutipniced the thecry of a corporatian's cartital stivativer. firht study were changed by MM and other researchers as the theory of cepital structure evolved an that apply. A firm's eartungs before interest and taxes (BrT) is constant, and is not aflocted by the une of deht. friventors have different axpectatons about firmo' earnings and risk: Complete inforination is resdify availatile to all investors and is free to all mackot participants. A fertis ramangs will grow at an unpeedictoble rate. theve arn no taxes ieither persondil or comporate. The cost of debt ancreases enth the level of dnbt. Comsider the followne statement abeot is firrn's captal structure Consider the following statement about a firm's capital vtructure: The vilue of the firm is independent of its leverage. Yes Wo