What Should Be the Relation Between the Target Capital Structure

question 35

Multiple Choice

What should be the relation between the target capital structure for a firm and the firm's optimum capital structure?

• A) Target and optimum capital structures should be the same.
• B) Target capital structure is more conservative overall.
• C) Target capital structure contains more debt.
• D) Target capital structure excludes preferred stock.

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Definitions:

Redemption

The act of buying back something previously sold, such as a company repurchasing its own shares from investors.

Stated Capital

This refers to the capital that a corporation declares in its charter as its official capital.

Insolvent

A state in which an individual or entity cannot meet their financial obligations as debts come due, often leading to bankruptcy proceedings.

Redemption

The act of buying back something that was previously sold, or the act of fulfilling a promise.