The Amount of Debt in a Firm's Optimal Capital Structure

question 62

Multiple Choice

The amount of debt in a firm's optimal capital structure is often referred to as the firm's ____.

• A) debt capacity
• B) lending ability
• C) line of credit
• D) loan limit

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Definitions:

Equity Firm

A company that invests in businesses, typically taking a sizable stake, with the goal of increasing value over time before eventually divesting.

Borrowing

This is the act of obtaining funds from a lender under the agreement to pay back the principal amount along with interest.

Repurchase

The act of buying back goods or securities that were previously sold, often referring to a company buying back its own shares.

Equity Firm

A company that invests its clients' funds in businesses, typically acquiring significant control or full ownership.