Question
A utility with stable cash flows, tangible assets, and a high tax rate would likely choose what kind of leverage?
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Answer
Relatively high leverage.
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Question
Why should firms in decline often reduce debt?
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Answer
Cash flows become less predictable, increasing distress risk.
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Question
Why do managers seek an optimal capital structure?
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Answer
To minimize WACC and maximize firm value.
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Question
How does a typical startup's capital structure differ from that of a mature firm?
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Answer
Startups are equity-heavy; mature firms can support more debt.
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