The optimal capital structure of a firm is a function of the ____.
A) business risk of the firm
B) tax structure
C) business risk of the firm and the tax structure
D) the variability of sales volumes

Question

Quizplus · Accepted Answer

The optimal capital structure of a firm takes into consideration both the business risk of the firm and the tax structure. Business risk refers to the level of risk associated with the firm's operations and the industry it operates in. Tax structure refers to the level of taxation placed on the firm's profits. Therefore, the optimal capital structure will vary depending on these two factors. The variability of sales volumes is also a factor to consider, but it is not the only factor to consider in determining the optimal capital structure.

The Optimal Capital Structure of a Firm Is a Function