The Combination of Debt and Equity That Maximizes a Firm's

question 32

Multiple Choice

The combination of debt and equity that maximizes a firm's value is known as the

• A)degree of financial leverage (DFL).
• B)maximum WACC.
• C)maximum business risk.
• D)optimal capital structure.

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Definitions:

Fiscal Policy

Governmental adjustments to its spending levels and tax rates to monitor and influence a nation's economy.

Inflationary Gaps

A situation in macroeconomics where the demand for goods and services exceeds production due to excessive spending, leading to inflation.

Recessionary Gaps

Situations where the real GDP is lower than the potential GDP due to insufficient aggregate demand, leading to unemployment and underused resources.

Equilibrium GDP

The point at which the aggregate supply and aggregate demand within an economy are equal, indicating a state of economic balance.