Asked by
Madeline Owens
on Dec 01, 2024
Verified
General guidelines for managers regarding capital structure include all of the following except;
A) A firm with healthy profits and very little debt should not borrow more money
B) For most businesses, the optimal capital structure is between 30% and 50% debt
C) Debt levels above 60% create excessive risk and should be avoided
D) All of the above are correct
Optimal Capital Structure
The best combination of debt and equity financing that maximizes a company's value while minimizing its cost of capital.
Debt Levels
The total amount of borrowing, represented as a ratio of debt to equity or a total dollar amount.
Excessive Risk
Engaging in financial activities that have a high chance of resulting in significant loss.
- Understanding the elements that impact a company's choice to modify its financial leverage.
- Assessing the compromise between risk and return when determining capital structure choices.
Verified Answer
SM
Learning Objectives
- Understanding the elements that impact a company's choice to modify its financial leverage.
- Assessing the compromise between risk and return when determining capital structure choices.
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