The capital structure chosen by a firm doesn't really matter because of:
A)taxes.
B)the effects of leverage on the cost of equity.
C)homemade leverage.
D)the interest tax shield.
E)the relationship between dividends and earnings per share.

Question

Quizplus · Accepted Answer

Homemade leverage refers to the ability of investors to adjust their personal leverage by buying shares on margin or choosing to hold cash or debt. This means that even if the firm chooses a particular capital structure, investors can adjust their own leverage to achieve their desired risk and return preferences. Therefore, the specific capital structure chosen by the firm may not have a significant impact on the overall cost of capital or value of the firm.

The Capital Structure Chosen by a Firm Doesn't Really Matter