The Optimal Capital Structure Is Met When

question 40

Multiple Choice

The optimal capital structure is met when:

• A)additional borrowing results in lower financial distress costs.
• B)additional borrowing is offset by the interest tax shield.
• C)the tax savings from additional leverage is just offset by the costs of distress.
• D)the present value of the tax shield is greater than the value of an all-equity financed firm.

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Definitions:

Money

A means of trade employed to simplify the process of buying and selling goods and services.

Product Market

The marketplace in which final goods or services are offered to consumers, businesses, and the public sector.

Household

A social unit of people living together, typically characterized by common residence, economic cooperation, and often familial ties.

Business

An organization or economic system where goods and services are exchanged for one another or for money.