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Why is the optimal debt ratio for reebok so high

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Question: In 1995, an analysis of the capital structure of Reebok provided the following results on the weighted average cost of capital and firm value.

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This analysis was based upon the 1995 earnings before interest and taxes of $ 420 million, and a tax rate of 36.90%.

a. Why is the optimal debt ratio for Reebok so high?

b. What might be some of your concerns in moving to this optimal?

Reference no: EM131690112

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