The Optimal Capital Structure Has Been Achieved When The

question 42

Multiple Choice

The optimal capital structure has been achieved when the:

• A) Debt-equity ratio is equal to 1.
• B) Weight of equity is equal to the weight of debt.
• C) Cost of equity is maximized given a pre-tax cost of debt.
• D) Debt-equity ratio is such that the cost of debt exceeds the cost of equity.
• E) Debt-equity ratio selected results in the lowest possible weighed average cost of capital.

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Definitions:

Empirical Rule

A statistical rule stating that for a normal distribution, nearly all data will fall within three standard deviations of the mean.

Bell-Shaped

Describes the graphical form of a distribution that is symmetric around its mean, visually represented as a bell-shaped curve, typically associated with the normal distribution.

Sample Standard Deviation

A measure of the dispersion or variability of a sample dataset, indicating how much the individual data points differ from the sample mean.

Range

The difference between the highest and lowest values in a dataset, providing a measure of spread.