Which One of These Relationships Will Exist If a Firm

question 35

Multiple Choice

Which one of these relationships will exist if a firm is operating under its optimal capital structure?

• A)The net present value of the firm will equal zero.
• B)The firm's cost of capital will equal the risk-free rate.
• C)The present value of the financial distress costs will equal the present value of the tax shield on debt.
• D)The value of the firm will equal the maximum value obtainable according to the MM theories.
• E)The firm will be financed with equal amounts of long-term debt and equity.

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Definitions:

Proactive Interference

The difficulty in learning new information because of the interference from existing similar information.

Retrieval Cue

A stimulus that helps a person recall or recognize stored information.

Interference

A hypothesized process of forgetting in which material is thought to be buried or otherwise displaced by other information but still exists somewhere in a memory store.

Long-term Memory

A type of memory responsible for storing information for extended periods of time, ranging from several minutes to a lifetime, and includes various forms such as episodic and semantic memory.