Managers Should Not Change the Capital Structure Unless It Departs

question 106

Multiple Choice

Managers should not change the capital structure unless it departs significantly from the optimal level because such a change would:

• A)reduce dividends.
• B)incur transactions costs.
• C)increase fixed costs.
• D)change incentives of stakeholders.
• E)favour shareholders over debt holders.

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Definitions:

Permanent Shortage

Permanent Shortage refers to a situation where the demand for a good or service persistently exceeds its supply, often due to structural issues within the market or supply chain.

Temporary Shortage

A situation where the demand for a product or service exceeds its supply in a short-term period.

Quantity Demanded

The aggregate quantity of a product or service that buyers are ready to buy at a particular price point.

Quantity Supplied

The quantity of a commodity that producers are willing and able to sell at a particular price over a specified period of time.