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The financing decision

3.2 Traditional view conclusions

 Shareholder wealth is affected by changing the level of gearing.

 There is an optimal gearing ratio at which WACC is minimised and
the total value of the company is maximised.

 Financial managers have a duty to achieve and maintain this ratio.

 While we accept that the WACC is probably U shaped for entities
generally, we cannot precisely calculate a best gearing level.

 The optimum level will differ from one company to another and
can only be found by trial and error.

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