The Capital Structure Chosen by a Firm Doesn't Really Matter

question 4

Multiple Choice

The capital structure chosen by a firm doesn't really matter because of:

• A) taxes.
• B) the interest tax shield.
• C) the relationship between dividends and earnings per share.
• D) the effects of leverage on the cost of equity.
• E) homemade leveragE.

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Definitions:

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance premiums.

Variable Costs

Expenses that change in proportion to the activity or production level, such as raw materials, labor costs, and energy usage, in contrast to fixed costs which remain constant regardless of output.

Variable Costs

Costs that vary directly with the level of output or production volume, such as raw materials and labor expenses.

Total Revenue

The total income generated by a company from its sales of goods or services before any costs or expenses are deducted.