The Optimal Capital Structure Has Been Achieved When The

question 1

Multiple Choice

The optimal capital structure has been achieved when the:

• A) debt-equity ratio is equal to 1.
• B) weight of equity is equal to the weight of debt.
• C) cost of equity is maximized given a pre-tax cost of debt.
• D) debt-equity ratio selected results in the lowest possible weighed average cost of capital.

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Definitions:

Unambiguous

Clear and precise with only one interpretation, leaving no doubt or confusion.

Ambiguous

Something that can be understood in more than one way; lacking clearness or definiteness.

Productivity

In industry, the capability to produce effectively, gauged by how much output is generated per input unit.

Reinforcement

In psychology, a process by which a behavior is strengthened or increased in frequency, often through the application of a reward or the removal of a negative stimulus.