The Combination of Debt and Equity That Maximizes a Firm's

question 46

Multiple Choice

The combination of debt and equity that maximizes a firm's value is known as the:

• A) degree of financial leverage (DFL).
• B) maximum weighted average cost of capital (WACC).
• C) maximum business risk.
• D) optimal capital structure.
• E) indifference point.

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Definitions:

Independent Leasing Company

A business that provides leasing services without being affiliated with any single manufacturer or seller, allowing for a wide range of asset leasing options.

Captive Financial Lease

A leasing arrangement where the lessor is owned by or closely affiliated with the company that manufactures or sells the leased asset, often used to finance purchases from the parent company.

Sale and Leaseback

A financial transaction where an entity sells an asset and immediately leases it back from the buyer, allowing the seller to continue using the asset while freeing up capital.

Leasing Reasons

The motives or considerations for choosing to lease assets, such as financial flexibility, tax advantages, or capital preservation.