Managers Should Not Change the Capital Structure Unless It Departs

question 106

Multiple Choice

Managers should not change the capital structure unless it departs significantly from the optimal level because such a change would:

• A)reduce dividends.
• B)incur transactions costs.
• C)increase fixed costs.
• D)change incentives of stakeholders.
• E)favour shareholders over debt holders.

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Definitions:

Economic Contraction

A decline in national output as measured by GDP, often marked by a decrease in spending, investment, and general economic activity.

Aggregate Supply

The total supply of goods and services that firms in an economy are willing and able to sell at a given overall price level in a given time period.

Aggregate Demand

The total demand for all goods and services within a particular market or economy at a given overall price level and in a given period.

Real Exchange Rate

Measures the value of goods in one country compared to those in another, adjusting for price level differences.