Someone outside the company, however, such as an analyst, typically does not know the target capital structure and must estimate it using one of several approaches:
Assume the company’s current capital structure, at market value weights for the components, represents the company’s target capital structure.
Examine trends in the company’s capital structure or statements by management regarding capital structure policy to infer the target capital structure.
Use averages of comparable companies’ capital structures as the target capital structure.
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