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According to the traditional approach cost of capital affected by

This question belongs to Commerce Financial Management
Financial Management
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According to the traditional approach cost of capital affected by?

Answer & Solution
Correct Answer: Option A
The traditional approach to capital structure advocates that there is a right combination of equity and debt in the capital structure, at which the market value of a firm is maximum. As per this approach, debt should exist in the capital structure only up to a specific point, beyond which, any increase in leverage would result in the reduction in value of the firm.
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