A general rule for managers to follow is to establish a firm's capital structure such that the firm's
A)cost of equity is minimized.
B)bondholders are fully secured.
C)current market value is maximized.
D)dividend payout is maximized.
E)assets are minimized.

Question

Quizplus · Accepted Answer

The primary objective of establishing a firm's capital structure is to maximize its current market value. This involves finding an optimal balance between debt and equity financing, which is unique to each firm's circumstances and financial goals. However, maximizing market value does not necessarily mean minimizing the cost of equity or maximizing dividend payouts, as these factors depend on multiple variables and market conditions. Ensuring bondholders are fully secured is also a consideration in the capital structure decision, but it is secondary to the primary objective of maximizing market value. Minimizing assets is not a desirable goal, as it would decrease the firm's overall value.

A General Rule for Managers to Follow Is to Establish