The Optimal Capital Structure of a Firm

question 53

Multiple Choice

The optimal capital structure of a firm

• A)will remain constant over time unless the firm makes an acquisition.
• B)is unaffected by changes in the financial markets.
• C)will be the same for all firms in the same industry.
• D)places more emphasis on the operations than on the financing of the firm.
• E)will vary over time as taxes and market conditions change.

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Definitions:

Corporate Form of Organization

A legal structure for a business recognized as a separate legal entity from its owners, providing limited liability protection, and able to raise capital through issuing shares.

Limited Liability

A legal structure that limits the amount of financial risk and liability to the amount a person has invested in a company.

Shareholders

Individuals or entities that own one or more shares of stock in a corporation, giving them certain rights and potential financial benefits based on the company's performance.

Corporate Form of Organization

A legal structure for a business recognized as a separate legal entity, with owners (shareholders) who have limited liability.