The Static Theory of Capital Structure Supports the Theory That

question 264

Multiple Choice

The static theory of capital structure supports the theory that value-maximizing managers will:

• A) Look to the asset side of the balance sheet to increase firm value since the mix of debt and equity selected is unlikely to affect firm value.
• B) Not concern themselves with the capital structure of the firm as it is an irrelevant issue.
• C) Select the capital structure for which the cost associated with the probability of financial distress equals the benefit of the interest tax shield.
• D) Select an all equity capital structure to ensure the value of the firm is maximized.
• E) Select the capital structure which maximizes the interest tax shield.

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