The optimal capital structure:
A)of a firm will vary over time as taxes and market conditions change.
B)is unaffected by changes in the financial markets.
C)will be the same for all firms in the same industry.
D)places more emphasis on the operations of a firm rather than the financing of a firm.
E)will remain constant over time unless the firm makes an acquisition.

Question

Quizplus · Accepted Answer

The optimal capital structure of a firm may vary over time due to changes in tax policies, economic conditions, and market conditions. Therefore, A is the correct choice. B is wrong because changes in the financial markets affect the optimal capital structure of a firm. C is wrong because each firm in an industry has unique characteristics that influence their capital structure. D is wrong because the capital structure is an integral part of the financing of a firm. E is wrong because the optimal capital structure of a firm may change even if it does not make an acquisition.

The Optimal Capital Structure