The Optimal Capital Structure of a Firm Is That Combination

question 16

True/False

The optimal capital structure of a firm is that combination of debt and equity that provides the highest overall cost of capital,or the highest WACC.

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Definitions:

Capital Structures

The mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity, constituting how a firm finances its overall operations and growth.

Tax Shelters

Investment strategies or financial arrangements used to minimize tax liabilities, often by deferring or reducing taxable income.

Return on Assets

A financial ratio that indicates the profitability of a company relative to its total assets.