The target capital structure of a firm is the capital structure that:
A) minimizes the operating risk of the firm's assets.
B) maximizes the tax shield created by debt.
C) minimizes the default risk of long-term debt.
D) maximizes the price of the firm's stock.
E) minimizes the risk premium paid on long-term debt.

Question

Quizplus · Accepted Answer

The target capital structure of a firm is designed to maximize the firm's stock price by optimizing the balance between debt and equity, considering the cost of capital and the risk-return trade-off.

The Target Capital Structure of a Firm Is the Capital