A Firm Should Select the Capital Structure Which

question 2

Multiple Choice

A firm should select the capital structure which:

• A)maximizes the value of the firm.
• B)has no debt.
• C)is fully levered.
• D)minimizes taxes.
• E)produces the highest cost of capital.

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Definitions:

Long Run

A period in which all factors of production and costs are variable, and firms can adjust all inputs.

Inputs Fixed

Refers to factors of production (like capital and land) that remain constant in quantity, regardless of the level of output.

Inputs Variable

Factors of production such as labor, land, and capital that are used to create goods and services.

Long-Run Adjustment

A process businesses undergo to alter their level of output in response to economic changes, ensuring long-term economic efficiency and resource allocation.