Abstract
Within modern theory of capital cost and capital structure by Brusov–Filatova–Orekhova (Brusov and Filatova 2011; Brusov et al. 2011a, b, c, 2012a, b, 2013a, b, 2014a, b; Filatova et al. 2008), the analysis of wide-known trade-off theory has been made. It is shown that suggestion about risky debt financing (and about growth of credit rate near the bankruptcy) in opposite to waiting result does not lead to growth of weighted average cost of capital, WACC, which still decreases with leverage. This means the absence of minimum in the dependence of WACC on leverage as well as the absence of maximum in the dependence of company capitalization on leverage. Thus, it means that the optimal capital structure is absent in famous trade-off theory. The explanation to this fact has been done.
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Brusov, P., Filatova, T., Orekhova, N., Eskindarov, M. (2015). Bankruptcy of the Famous Trade-Off Theory. In: Modern Corporate Finance, Investments and Taxation. Springer, Cham. https://doi.org/10.1007/978-3-319-14732-1_4
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DOI: https://doi.org/10.1007/978-3-319-14732-1_4
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