Once the target capital structure for a firm is decided,managerial decisions can result in the actual capital structure differing from the target structure,but operating conditions will have a negligible effect on actual capital structure.

Question

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Operating conditions such as changes in interest rates, market conditions, and business risks can significantly impact a firm's actual capital structure, leading to deviations from the target structure. Managerial decisions may also play a role in shaping the actual structure, but they are not the only determining factor.

Once the Target Capital Structure for a Firm Is Decided,managerial