## Economic rents, the demand for capital, and financial structure |

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ADAX approaches zero becomes less concave capital increases changes in marginal choice of p,A contour of q correlated with market cost of capital covariance debt financing demand for assets demand for capital depend on leverage enterprise's entirely with equity equals unity equates marginal q Equity Financing exceeds unity expected rate expected return expected value falls function graph of A0 Heterogeneous Expectations increases with leverage inframarginal assets interest rate less optimistic marginal assets marginal cost marginal q equals marginal return market portfolio market returns maximize q MEC becomes less negative optimal capital structure optimal choice pdf(r pdfir project is financed project's returns Proposition q exceeds q with unity rate of interest rate of return rate on debt reduces marginal q return on assets return on debt return on marginal Revised MEC risk-free rate slope of A0 stock of assets Supply of Equity systematic risk things equal Tobin's q