Managers Should Not Change the Capital Structure Unless It Departs

question 87

Multiple Choice

Managers should not change the capital structure unless it departs significantly from the optimal level because such a change would ________.

• A) reduce dividends
• B) incur transactions costs
• C) increase fixed costs
• D) change incentives of stakeholders

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Definitions:

Mistake

An erroneous belief about the facts of a contract at the time the contract is concluded. When a mistake occurs, legal assent is absent.

Material Effect

A significant impact or change on a company's operations, financial condition, or future prospects.

Unilateral Mistake

A situation in a contract where one party is mistaken about a critical fact of the agreement, which could potentially lead to the contract being voidable by the mistaken party.

Bilateral

Involving two parties, sides, or aspects, often referring to agreements or relationships between two entities.