A general rule for managers to follow is to set the firm's capital structure such that:
A) the firm's value is minimized.
B) the firm's value is maximized.
C) the firm's bondholders are made well off.
D) the firms suppliers of raw materials are satisfied.
E) the firms dividend payout is maximized.

Question

Quizplus · Accepted Answer

The goal of setting the firm's capital structure is to maximize the firm's value. This can be achieved by finding the optimal mix of debt and equity financing that minimizes the weighted average cost of capital while also taking into consideration the firm's risk level and financial flexibility. Maximizing the firm's value benefits all stakeholders, including shareholders, bondholders, and suppliers, as it provides the firm with the necessary resources to generate profits and meet its obligations. Therefore, choice B is the best option.

A General Rule for Managers to Follow Is to Set