Which of the Following Is a Lesson Gleaned from the Empirical

question 31

Multiple Choice

Which of the following is a lesson gleaned from the empirical evidence that a CFO might find useful in determining his own firm's capital structure?

• A)CFOs should simply copy the capital structure of their firm's peers since the optimal capital structure seems to be the same for firms within the same industry.
• B)The failure to rebalance his firm's capital structure when market forces change it is the sign of a bad manager.
• C)The decision whether to rebalance a firm's capital structure, if necessary, when market forces change it should be based on a cost-benefit analysis.
• D)Capital structure is irrelevant,which is why smart CFOs do not bother to rebalance their firm's capital structure when market forces change it.

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Definitions:

Common Stock Account

An equity account that represents the ownership interest of shareholders in a corporation, recorded at par value or issued price.

Stock Dividend

A dividend payment made in the form of additional shares of the issuing company, rather than as cash.

Additional Paid-In Capital

The excess amount paid by investors over the par value of the stock during the issuance of shares.