With per cent debt ratio increased, while tax shield benefits cost increases, the financial exhaustion also increased. There will come a point, when each debt ratio increases, the present value of tax benefits from the shield is not higher than the current cost of financial exhaustion, the loan is no longer beneficial to the business. Because of this, the company seeks to optimize total enterprise value based on the principle of balance to determine how much should choose how much debt and equity in its capital structure. Of determining the optimal capital structure is in there with each of creditors increased the PV (tax shield) = PV (costs of financial exhaustion)
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