The Capital Structure That Maximizes the Value of a Firm

question 31

Multiple Choice

The capital structure that maximizes the value of a firm also:

• A)minimizes financial distress costs.
• B)minimizes the cost of capital.
• C)maximizes the present value of the tax shield on debt.
• D)maximizes the value of the debt.
• E)maximizes the value of the unlevered firm.

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Definitions:

Increase in Supply

A situation in which the quantity of a good or service that producers are willing and able to offer for sale rises, holding all else equal.

Increase in Demand

Occurs when more of a good or service is sought by consumers at each and every price, often represented by a rightward shift of the demand curve.

Equilibrium Quantity

The quantity of goods or services that is supplied and demanded at the equilibrium price, where supply equals demand.

Demand Falls

A situation where there is a decrease in the quantity of a product or service that consumers are willing and able to purchase at a given price.