The Optimal Capital Structure Is Met When

question 2

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 are 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:

Quantity Supplied

The amount of a good or service that producers are willing and able to sell at a certain price over a specified period.

Excess Supply

A situation in which the quantity of a good or service supplied is more than the quantity demanded.

Quantity Supplied

The amount of a commodity that producers are willing to sell at a given price over a specified period.

Market Equilibrium

A state in which market supply and demand are balanced at a certain price level, leading to economic stability in which the quantity supplied equals the quantity demanded.