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

Question

Quizplus · Accepted Answer

The optimal capital structure is the mix of debt, equity, and other financing instruments that minimize the cost of capital and maximize shareholder value. This mix will vary over time as market conditions and tax laws change, as well as the firm's strategic objectives and risk appetite. Therefore, the optimal capital structure is not constant or uniform across firms or industries. Instead, it should adapt to the firm's unique circumstances and environment.

The Optimal Capital Structure