What should be the relation between the target capital structure for a firm and the firm's optimum capital structure?
A) Target and optimum capital structures should be the same.
B) Target capital structure is more conservative overall.
C) Target capital structure contains more debt.
D) Target capital structure excludes preferred stock.

Question

Quizplus · Accepted Answer

The target capital structure is what a firm aims to achieve in the long run and is considered optimal for minimizing the cost of capital and maximizing the firm's value. Therefore, the target and optimum capital structures should ideally be the same.

What Should Be the Relation Between the Target Capital Structure