In theory, the firm should maintain financial leverage consistent with a capital structure that
A) maximizes the earnings per share.
B) meets the industry standard.
C) maximizes dividends.
D) maximizes the owner's wealth.

Question

Quizplus · Accepted Answer

The primary goal of the firm should be to maximize the wealth of the owners, and financial leverage should be maintained in a way that is consistent with this goal. Maximizing earnings per share or dividends may not always align with the long-term interests of the firm or its shareholders. Meeting the industry standard is also not necessarily an optimal strategy, as each firm's capital needs and risk profile may differ.

In Theory, the Firm Should Maintain Financial Leverage Consistent with a Capital