Sub: Finance Topic: Capital Structure
Evaluation of various capital structure mix.
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What remains to be seen, however, is whether shareholders are better or worse off with more leverage.
Problem 2 does not tell us because there we computed total value of equity, and shareholders care
about value per share. Ordinarily, to value will be a good proxy for what is happening to the price per
share, but in the case of a relevering firm, that may not be true. Implicitly, we assumed that, as our firm