Asked by
Lazale Wilkerson
on Dec 09, 2024Verified
The optimal capital structure will tend to include more debt for firms with:
A) The highest depreciation deductions.
B) The lowest marginal tax rate.
C) Substantial tax shields from other sources.
D) Lower probability of financial distress.
E) Less taxable income.
Optimal Capital Structure
Optimal capital structure is the mix of debt, equity, and other financing sources that minimizes a firm's cost of capital and maximizes shareholder value, balancing risk and return.
Financial Distress
A situation where a company cannot meet or has difficulty paying off its financial obligations to creditors, often leading to bankruptcy or restructuring.
Taxable Income
The amount of income used to calculate how much tax an individual or a company owes to the government.
- Acknowledge the significance of taxation, bankruptcy charges, and financial difficulties in the decision-making process of capital structuring.
Verified Answer
TM
Learning Objectives
- Acknowledge the significance of taxation, bankruptcy charges, and financial difficulties in the decision-making process of capital structuring.