Managers should select the capital structure that
A)maximizes the value of the firm.
B)has no debt.
C)is fully levered.
D)minimizes taxes.
E)produces the highest current level of net income.

Question

Quizplus · Accepted Answer

The goal of a firm is to maximize shareholder wealth, and the capital structure decision can have a significant impact on the value of the firm. Therefore, managers should choose the capital structure that maximizes the value of the firm. This means determining the optimal mix of debt and equity financing that balances the benefits of debt (such as tax shields and lower cost of capital) against the costs of debt (such as increased risk and potential financial distress).

Managers Should Select the Capital Structure That