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Explain how adverse selection and moral hazard affect the qualitative characteristics of accounting information.
Optimal Capital Structure
The proportional mix of debt and equity financing that minimizes a company's cost of capital and maximizes its value.
Market Price
The market's ongoing price for an asset or service available for sale or purchase.
Firm's Bonds
Long-term debt securities issued by a corporation to finance its projects and operations, typically offering regular interest payments to the holder.
Depreciation Tax Deduction
A tax deduction allowing businesses to write off the loss of value of tangible assets over their useful lives, reducing taxable income.
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