The optimal capital structure of a firm ________ the marketable claims and ________ the nonmarketable claims against the cash flows of the firm.
A)minimizes; minimizes
B)minimizes; maximizes
C)maximizes; minimizes
D)maximizes; maximizes
E)equates; (leave blank)

Question

Quizplus · Accepted Answer

The optimal capital structure of a firm maximizes the marketable claims (i.e., those claims that can be easily bought and sold in the financial markets, such as stocks and bonds) and minimizes the nonmarketable claims (i.e., claims that are not easily traded, often representing private agreements or more illiquid investments) against the cash flows of the firm. This approach helps in enhancing the firm's value by increasing liquidity and reducing costs associated with less liquid investments.

The Optimal Capital Structure of a Firm ________ the Marketable