1.Business Risk: Excluding debt, business risk is the basic risk of the company's operations. The greater the business risk, the lower the optimal debt ratio.//
2.Company's Tax Exposure: Debt payments are tax deductible. As such, if a company's tax rate is high, using debt as a means of financing a project is attractive because the tax deductibility of the debt payments protects some income from taxes.//
3.Financial Flexibility: This is essentially the firm's ability to raise capital in bad times. It should come as no surprise that companies typically have no problem raising capital when sales are growing and earnings are strong.//
4.Management Style: Management styles range from aggressive to conservative. The more conservative a management's approach is, the less inclined it is to use debt to increase profits.//
5.Growth Rate: Firms that are in the growth stage of their cycle typically finance that growth through debt, borrowing money to grow faster.
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