Which One of These Relationships Will Exist If a Firm

question 33

Multiple Choice

Which one of these relationships will exist if a firm is operating under its optimal capital structure?

• A)The net present value of the firm will equal zero.
• B)The firm's cost of capital will equal the risk-free rate.
• C)The present value of the financial distress costs will equal the present value of the tax shield on debt.
• D)The value of the firm equal the maximum value obtainable according to the MM theories.
• E)The firm will be financed with equal amounts of long-term debt and equity.

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Definitions:

Psyche

The human mind or soul, often used to refer to the mental and emotional aspects of an individual.

Aristotle

An ancient Greek philosopher and scientist whose works covered a wide range of subjects and laid the groundwork for many areas of Western philosophy and science.

Dualism

Philosophical position that both a nonmaterial mind and a material body contribute to behavior.

Persistent Vegetative State (PVS)

Condition in which a person is alive but unaware, unable to communicate or to function independently at even the most basic level.