Going Public Effect on Optimal Debt Ratio

Assume that Bookscape is planning to make an initial public offering in six months. How would this information change your assessment of the optimal debt ratio?

a. It will increase the optimal debt ratio because publicly traded firms should be able to borrow more than private businesses b. It will reduce the optimal debt ratio because only market risk counts for a publicly traded firm c. It may increase or decrease the optimal debt ratio, depending on which effect dominates

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