The Optimal Capital Structure of a fiRm Maximizes the Value

question 152

Multiple Choice

The optimal capital structure of a firm maximizes the value of the firm while:

• A) Maximizing the interest tax shield.
• B) Minimizing the firm's cost of capital.
• C) Equating the level of debt to the level of equity.
• D) Minimizing the debt-equity ratio.
• E) Minimizing the financial distress costs.

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Definitions:

Direct Materials

Resources that can be directly associated with the manufacture of particular goods or services.

Job-Order Costing

A cost accounting method by which costs are assigned to specific jobs or batches, making it possible to calculate the cost per job accurately.

Direct Labor

The labor cost of workers who are directly involved in the production or manufacture of goods or services.

Work in Process

Partially finished goods that are still in the process of production. They are considered an asset on the company's balance sheet.