If Interaction Effects Make It Difficult for a Firm to Adjust

question 13

Multiple Choice

If interaction effects make it difficult for a firm to adjust its capital structure based on prevailing conditions, then

• A)the firm should target a 50% debt/50% equity capital structure.
• B)the firm should choose the capital structure that will minimize all transaction costs--both direct and indirect.
• C)the firm should use as much debt financing as possible when it is financially healthy in order to benefit from lower corporate taxes.
• D)the firm should use more equity financing than is necessarily optimal today in order to maintain financial flexibility.

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Definitions:

Professional Responsibility

The ethical and moral obligations that professionals have towards their clients, society, and their profession, including maintaining competence and confidentiality.

Consulting

Offering expert advice in a particular area or specialty to improve a client or organization's performance or strategy.

Competent

Possessing the necessary ability, knowledge, or skill to do something successfully.

Tarasoff v. The Regents

Tarasoff v. The Regents of the University of California is a landmark legal case that established the duty of mental health professionals to warn identifiable individuals of threats made by a patient.