Managers should not change the capital structure unless it departs significantly from the optimal level because such a change would ________.
A) reduce dividends
B) incur transactions costs
C) increase fixed costs
D) change incentives of stakeholders

Question

Quizplus · Accepted Answer

Changing the capital structure incurs transaction costs, such as fees for issuing new securities or paying off existing ones. Therefore, managers should avoid making such changes unless they are necessary and depart significantly from the optimal level. Option A is not necessarily true, as changing the capital structure does not always result in reduced dividends. Options C and D are not directly related to the decision of changing the capital structure.

Managers Should Not Change the Capital Structure Unless It Departs