If a Firm's Optimal Capital Structure Is Relatively Flat

question 58

Multiple Choice

If a firm's optimal capital structure is relatively flat,

• A)the cost of short-term financing and long-term financing will be roughly equal for the firm.
• B)the firm should be using 50% debt and 50% equity financing.
• C)a firm's management should not be concerned about small deviations of their debt ratio from its optimal level.
• D)the firm's cost of capital will be minimized by using more equity financing.

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Definitions:

Financial Instruments

Contracts that give rise to both a financial asset of one entity and a financial liability or equity instrument of another entity, such as stocks, bonds, or derivatives.

Business Combination

A transaction or event in which an acquirer gains control over one or more businesses, typically through the acquisition of equity interests.

Fair Value

An estimate of the price at which an asset or liability could be exchanged in a current transaction between willing, unrelated parties.

Business Combination

A transaction or event that brings two or more companies together to form a single entity, often through mergers, acquisitions, or consolidations.