The Target Capital Structure of a Firm Is the Capital

question 48

Multiple Choice

The target capital structure of a firm is the capital structure that:

• A) minimizes the operating risk of the firm's assets.
• B) maximizes the tax shield created by debt.
• C) minimizes the default risk of long-term debt.
• D) maximizes the price of the firm's stock.
• E) minimizes the risk premium paid on long-term debt.

---

Definitions:

Board of Directors

A group of individuals elected by shareholders to oversee the management and governance of a corporation.

Strategic Benefits

Advantages gained by a business that help it achieve its organizational goals, often through improved competitiveness or market positioning.

Acquisition

The process of acquiring control of another company or asset.

Economies of Scale

Refers to the cost advantage experienced by firms when production becomes efficient, as the scale of production increases, leading to a decrease in average costs per unit.