Under the customary approach, firms strive to either maintain their present capital structure or achieve some target structure. Both the current and the target structures must be based on:

Question

Quizplus · Accepted Answer

The customary approach is based on market values, as the primary goal of maintaining or achieving a target capital structure is to maximize shareholder wealth, which is determined by the market value of the firm's equity. Book values may not accurately reflect the true economic value of a firm's assets, and intrinsic or future values are difficult to estimate and not commonly used in capital structure decisions.

Under the Customary Approach, Firms Strive to Either Maintain Their