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sir is there any major difference between static trade-off theory and optimal gearing structure theory(traditional view). aren’t both of them trying to convey the same thing?
that if the target debt ratio is exceeded then increasing gearing will lead to increase in WACC.
and as long as gearing is below target debt ratio, gearing can be increased as the debt is not only cheaper than equity(due to lower risk attached) but also has tax shield.
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