The Optimal Capital Structure Is the Mixture of Debt and Equity

question 118

Multiple Choice

The optimal capital structure is the mixture of debt and equity which

• A) Maximizes the value of the firm and Minimizes the firm's weighted average cost of capital.
• B) Maximizes the value of the firm and maximizes the market price of the firm's bonds.
• C) I. Maximizes the value of the firm. II. Minimizes the firm's weighted average cost of capital. III. Maximizes the market price of the firm's bonds.
• D) Minimizes the firm's weighted average cost of capital and maximizes the market price of the firm's bonds.
• E) Maximizes the firm's weighted average cost of capital and maximizes the market price of the firm's bonds.

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Definitions:

Amortization Expense

Amortization expense is the process of systematically allocating the cost of an intangible asset over its useful life, reflecting the consumption of the asset's economic benefits over time.

Significant Influence

The ability to engage in the decisions related to the financial and operating policies of an investee without having control over those policies.

Common Stock

A type of equity ownership in a corporation, representing a claim on part of the company's profits and a right to vote on corporate matters.

Dividends

Payments made to shareholders out of a company's profits.