The Optimal Capital Structure Will Tend to Include More Debt

question 25

Multiple Choice

The optimal capital structure will tend to include more debt for firms with:

• A)the highest depreciation deductions.
• B)the lowest marginal tax rate.
• C)substantial tax shields from other sources.
• D)lower probability of financial distress.
• E)less taxable income.

---

Definitions:

Ledger

A book or collection of financial accounts.

Trial Balance

A bookkeeping report that lists the balances of all ledgers accounts in order to verify that debits equal credits.

Prepaid Expenses

Upfront costs incurred for items or services that are to be obtained in the upcoming time.

Accrued Expenses

Expenses that have been incurred but not yet paid, representing liabilities on the balance sheet.