A Manager Should Attempt to Maximize the Value of the fiRm

question 39

Multiple Choice

A manager should attempt to maximize the value of the firm by:

• A)changing the capital structure if and only if the value of the firm increases.
• B)changing the capital structure if and only if the value of the firm increases to the benefits to inside
• Management.
• C)changing the capital structure if and only if the value of the firm increases only to the benefits the
• Debtholders.
• D)changing the capital structure if and only if the value of the firm increases although it decreases the
• Stockholders' value.
• E)changing the capital structure if and only if the value of the firm increases and stockholder wealth is
• Constant.

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Definitions:

Additional Paid-in Capital

The amount of capital that is paid by investors above the par value of the stock during equity issuance.

Contributed Capital

The amount of money that shareholders have invested in a company through the purchase of its stock.

Retained Earnings

The portion of net earnings not distributed as dividends but retained by the company to reinvest in its core business or to pay debt.

Stock Dividends

Dividends paid to shareholders in the form of additional shares of stock instead of cash.